Asian stocks set to fall as BOE rattles investors: conclusion of the markets

(Bloomberg) – Asian stocks looked poised for further declines on Wednesday after U.S. stocks fell sharply on a warning that the Bank of England would remove emergency market support.

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Futures for Japan and Hong Kong traded lower and Australian stocks opened flat. The S&P 500 fell for the fifth consecutive session and the Nasdaq 100 fell more than 1% to set a new low in two years.

The risk action was prompted by comments from BOE Governor Andrew Bailey, who said the central bank would end its special support for the gilt market. He urged investors, including British pension funds which narrowly avoided the crisis last month, to unwind positions they cannot sustain. The pound held on most of its decline from Tuesday while the dollar maintained its gains.

Bailey’s stance adds to investor concerns being challenged by hawkish policymakers. Cleveland Federal Reserve Chair Loretta Mester said parameters needed to be tightened further to stifle inflation. That could mean a fourth straight U.S. 75 basis point hike in November if consumer price data due Thursday is stronger than expected.

A gauge of U.S.-listed Chinese stocks extended losses, with little support from overall funding and new yuan lending data that both beat consensus estimates by a wide margin. The outlook for China’s economy, which is grappling with Beijing’s Covid restrictions, continues to cast a shadow over Asian markets.

The gilt trade had closed ahead of Bailey’s comments. Adding to the impact on the pound, the 10-year Treasury yield closed at the highest level since 2010.

“It’s a very interesting line in the sand,” Jimmy Chang, chief investment officer at Rockefeller Global Family Office, told Bloomberg TV following Bailey’s comments. “Will the market go down? How much will yields increase? We will see.”

Kristina Hooper, chief global market strategist for Invesco, said in a note that while the global economy is slowing after rate hikes, there has yet to be a significant drop in inflation. “This is an extraordinary monetary policy tightening environment and we are waiting to see if anything breaks globally,” she said. “The UK has come closer.”

Elsewhere, U.S. banks kick off third-quarter earnings season this week with strategists bracing for weak earnings against a drumbeat of warnings about the growing risk of a global recession.

Russian President Vladimir Putin has threatened further missile attacks on Ukraine after hitting Kyiv and other cities in the most intense barrage of strikes since the early days of his invasion.

Key events this week:

  • Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock Inc., Delta Air Lines Inc., UnitedHealth Group Inc., US Bancorp, Wells Fargo & Co.

  • FOMC Minutes for September Meeting, Wednesday

  • US PPI, mortgage applications, Wednesday

  • OPEC’s monthly oil market report, Wednesday

  • The Fed’s Michelle Bowman and Neel Kashkari talk

  • ECB’s Christine Lagarde speaks

  • US CPI, first jobless claims, Thursday

  • G-20 finance ministers and central bankers meet on Thursday

  • China CPI, PPI, trade, Friday

  • U.S. Retail Sales, Business Inventories, University of Michigan Consumer Sentiment, Friday

  • BOE emergency bond buying set to end on Friday

Some of the major movements in the markets:

Shares

  • S&P 500 futures rose 0.2% at 8:08 a.m. Tokyo time. The S&P 500 fell 0.7%

  • Nasdaq 100 futures rose 0.2%. The Nasdaq 100 fell 1.2%

  • Hang Seng futures fell 0.9%

  • The S&P ASX index was little changed

  • Nikkei futures fell 0.3%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The pound edged up 0.1% to 1.0982 to the dollar

  • The euro was little changed at $0.9714

  • The Japanese yen was little changed at 145.83 per dollar

  • The offshore yuan was little changed at 7.1719 to the dollar

Cryptocurrencies

  • Bitcoin rose 0.2% to $19,050.11

  • Ether was little changed at $1,281.4

Obligations

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Robert D. Coleman