Market Wrap: Asia Stocks Bracing for Losses as US Volatility Surges

(Bloomberg) — In early trading, Asian stocks are expected to decrease as the sell-off in US equities intensifies due to concerns over geopolitical tensions and the possibility of prolonged global interest rate hikes.

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Australian stocks declined, and futures contracts in Japan and China indicate further drops on Monday morning, while oil opened slightly lower. On Friday, the S&P 500 broke its 200-day moving average, which some interpret as a bearish signal. Additionally, Wall Street’s “fear gauge,” the VIX, jumped to its highest level since March.

With the recent developments in the Middle East, traders continue to seek safe-haven assets. Gold maintained most of last week’s gains early Monday. Israel has escalated its air raids on Gaza in preparation for the “next phase” of the conflict with Hamas. Additionally, Israel warned that Hezbollah could drag Lebanon into a wider regional war.

On Friday, treasury yields partially retraced their weekly gains, which had pushed the 10-year rate to nearly 5%.

Earlier on Monday, the yen temporarily weakened beyond 150 per dollar, a significant level that could trigger intervention by Japanese authorities to support the currency. According to the Nikkei newspaper, Bank of Japan officials are considering tweaking the settings of the yield-curve control program at its policy meeting next week.

“Markets are once again on high alert for a potential BOJ intervention,” wrote Commonwealth Bank of Australia strategists, including Joseph Capurso, in a note to clients on Monday. They expect the yen to remain under pressure this week due to rising speculation of BOJ policy tightening and a widening yield gap between Japan and the US.

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Read: Bond Market’s Negative Signals Overwhelm Stock Rally

Aside from the Middle East crisis, global markets have experienced volatility in recent weeks due to increasing treasury yields and concerns about prolonged high interest rates. Federal Reserve Bank of Cleveland President Loretta Mester stated that the US central bank is approaching the end of its tightening campaign if the economy evolves as expected.

Although last week’s decline in the S&P 500 appeared relatively orderly, the closest futures contracts linked to the Cboe Volatility Index, also known as the VIX, closed Thursday in a pattern called backwardation. This pattern indicates growing distress as traders anticipate higher near-term volatility compared to the future.

Read: VIX Is in Backwardation! Here’s Why and What It Means: QuickTake

This week, traders will focus on inflation data in Australia and Japan, as well as economic activity indicators in the US and Europe, for insights into the outlook for global interest rates. Federal Reserve Chairman Jerome Powell is scheduled to deliver remarks, and the European Central Bank will announce a policy decision later this week.

Key events this week:

• Singapore CPI, Monday

• Taiwan jobless rate, industrial production, Monday

• Eurozone consumer confidence, Monday

• EU foreign ministers meet in Luxembourg, Monday

• Japanese Prime Minister Fumio Kishida delivers policy speech at Diet session, Monday

• Reserve Bank of Australia Governor Michele Bullock speaks in Sydney, Tuesday

• Eurozone S&P Global Services PMI, S&P Global Manufacturing PMI, Tuesday

• UK S&P Global / CIPS Manufacturing PMI, jobless claims, unemployment, Tuesday

• US S&P Global Manufacturing PMI, Tuesday

• UN Security Council is expected to open debate on the Middle East, Tuesday

• Microsoft, Alphabet earnings, Tuesday

• Australia 3Q CPI, Wednesday

• Hong Kong Chief Executive John Lee delivers his second policy address, Wednesday

• Canada rate decision, Wednesday

• Germany IFO business climate, Wednesday

• IBM, Meta earnings, Wednesday

• South Korea GDP, Thursday

• Turkey rate decision, Thursday

• European Central Bank rate decision, Thursday

• EU leaders summit in Brussels, Thursday-Friday

• Chile rate decision, Thursday

• US wholesale inventories, GDP, US durable goods, initial jobless claims, Thursday

• Intel, Amazon earnings, Thursday

• Japan Tokyo CPI, Friday

• China industrial profits, Friday

• Singapore home prices, Friday

• Spain GDP, Friday

• US personal spending and income, University of Michigan consumer sentiment, Friday

• Exxon Mobil earnings, Friday

Here are some of the major market movements:

Stocks

• S&P 500 Index fell 1.3% on Friday; S&P futures rose 0.2% as at 8:07 am in Tokyo

• S&P/ASX 200 fell 0.6%

• Nikkei 225 futures fell 0.7%

• Hang Seng futures fell 0.8%

Currencies

• The Australian dollar was little changed at $0.6319

• The Japanese yen was little changed at 149.87 per dollar

• The offshore yuan was little changed at 7.3275 per dollar

• The euro was little changed at $1.0597

Cryptocurrencies

• Bitcoin rose 0.3% to $29,960.66

• Ether rose 1.2% to $1,660.08

Bonds

• The yield on 10-year Treasuries declined eight basis points to 4.91% on Friday

• Japan’s 10-year yield fell 0.5 basis points to 0.835% on Friday

• Australia’s 10-year yield was little changed at 4.75% early Monday

Commodities

• West Texas Intermediate crude fell 0.4% to $87.77 a barrel

• Spot gold fell 0.2% to $1,977.42 an ounce

This story was produced with the assistance of Bloomberg Automation.

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