Morning Bid: Markets buckle under US rates, China blues

morning-bid:-markets-buckle-under-us-rates,-china-blues
Morning Bid: Markets buckle under US rates, China blues

Asian markets are bracing for a challenging end to the week due to a surge in U.S. bond yields and the possibility of higher interest rates, which has prompted a wave of sell orders across all asset classes. This comes after the release of strong U.S. private sector jobs data, raising concerns about steep borrowing costs. The upcoming non-farm payrolls report for June is expected to further solidify the hawkish outlook for U.S. rates and yields. The two-year yield has reached its highest level since 2007, while the 10-year yield has climbed back above 4.00%. As a result, the MSCI World share index experienced its largest decline since April, and the MSCI Asia ex-Japan index recorded its biggest fall since February and second largest this year.

On Friday, there will be some economic data releases from Asia, including updates on South Korean trade and Japanese household spending and consumption. However, the focus will primarily be on U.S. bond markets and China. U.S. Treasury Secretary Janet Yellen has arrived in Beijing for a four-day visit amid escalating trade tensions between the two economic superpowers. Expectations for a thaw in icy relations are low, with investors not anticipating significant progress. Additionally, investors’ negative outlook on China has been reinforced by a pessimistic report from Goldman Sachs on its banks, which triggered a widespread selloff in Hong Kong-listed banking stocks. The downgrade of major Chinese banks by Goldman Sachs due to concerns over government debt has added to worries about the already struggling property market and sluggish economic growth in China. The Hang Seng Mainland Banks Index plummeted 6.4% on Thursday, reaching a new low for the year and marking its largest one-day decline since February 2018. It is on track for its biggest weekly fall in over five years, down almost 10% this week.

Key developments that could provide further guidance to the markets on Friday include Janet Yellen’s visit to China, the release of Japan’s household spending data for May, and South Korea’s current account data for May.

In conclusion, Asian markets are facing significant challenges as U.S. bond yields surge and the possibility of higher interest rates looms. The strong U.S. jobs data has raised concerns about borrowing costs, leading to sell orders across various asset classes. The focus is on U.S. bond markets and China, with low expectations for progress in trade relations between the two countries. Additionally, a downbeat report from Goldman Sachs on Chinese banks has intensified worries about the country’s banking sector, which is already grappling with a weak property market and sluggish economic growth. Key developments to watch on Friday include Janet Yellen’s visit to China, Japan’s household spending data, and South Korea’s current account data.

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