The focus is on whether Australia’s central bank turns odd man out and hikes rates
Asian stocks snapped a three-day winning streak on Tuesday, sliding as the bond market’s rally halted and investors reined in enthusiasm about a possible peak in global interest rates.
Focus is on whether Australia’s central bank turns odd man out and hikes rates, with a policy decision due at 0330 GMT.
Stubbornly high core inflation last quarter has markets pricing nearly a 60 per cent possibility the Reserve Bank of Australia raises its benchmark cash rate to a 12-year high of 4.35 per cent.
Overnight the dollar had rallied with an increase in U.S. Treasury yields, leaving the Australian dollar under pressure at $0.6495 in morning trade in Asia. Aussie government bond futures dropped marginally and the ASX200, which had advanced in five consecutive sessions, slid 0.4 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.6 per cent after a three-day rally that lifted the benchmark by around 6 per cent. Japan’s Nikkei dropped 0.8 per cent.
The U.S. Fed left interest rates on hold last week and a benign jobs report on Friday reinforced wagers that there may not be any more U.S. hikes in this cycle.
Two-year U.S. Treasury yields gained around 11 bps overnight, though that only partially unwound an 18 bps drop in the previous week. Ten year yields added 10 bps on Monday, but had dropped around 30 bps last week.
Overnight the Nasdaq recorded a seventh consecutive session of gains – its longest streak since January – though its gain was a slender 0.3 per cent as the rally loses some steam. S&P 500 futures and European futures each dropped 0.2 per cent.
We will need another few weeks of data to know the direction we are heading, said Ben Bennett, APAC investment strategist for Legal and General Investment Management. Meanwhile, equity markets could be whipsawed by the economic noise.
Chinese trade data is also due later in the session.