US bond tantrum sends equities reeling
A not dovish enough Jerome Powell overnight saw the bond tantrum return, throwing more gloom on an already wobbling equity market. The S&P 500 by 1.34%, the tech-heavy Nasdaq plunged by 2.11%, and the previously steady Dow Jones retreated by 1.11%. US index futures continue lower in Asia, down by between 0.35% and 0.50%.
The picture is a little more mixed in Asia, but still mostly negative. The Nikkei 225 has fallen by 1.50%, with the Kospi down 0.85%. In China, though, markets have reversed an initial selloff and are now in the green. The Shanghai Composite and CSI 300 are both 0.10% higher now, although the Hang Seng is down 1.05%. The China outperformance can be laid at the National People’s Congress door, which has stated it wishes to explore joining the RCEP and deepen trade with South Korea, an important economic player in the region. It is also expected to announce massive investments to become more technology-independent.
Elsewhere in Asia, equity markets remain on the back foot. Taipei has fallen 0.30%, with Singapore and Jakarta down 0.10%, while Kuala Lumpur has climbed after oil prices rocketed higher overnight. Bangkok and Manilla are 0.25% lower. ASEAN markets have recouped early losses on the China RCEP news. Australia’s high beta to Wall Street means that the ASX 200 and All Ordinaries are 1.0% lower today.
With Asia catching a China RCEP tailwind, the fallout has been limited from the sharp falls on Wall Street. It is likely to be a temporary stay of execution, though, and the RCEP glow will quickly fade into next week, especially if US Non-Farm Payrolls tonight provoke another spike in US bond yields.
As I noted yesterday, numerous major indices in North America, Australia and Asia have staged downside breakouts. The downside correction potentially has some way to go, and rallies will be sold into the end of the week.
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