Tom Westbrook
SINGAPORE (Reuters) – Asian stocks fell and bond yields surged on Thursday on worries about inflation, while currency traders were wary that Japan might step in to stabilise the yen’s strength after it topped 160 yen to the dollar.
The dollar hit six-week highs against the pound and New Zealand dollar and was trading at 160.4 yen to the dollar, just below Thursday’s 38-year high.The anxious mood left overheated sectors of financial markets particularly vulnerable, with Nasdaq futures down 0.4%.
Shares of leading chipmaker Micron Technology Inc. fell 8% in U.S. after-hours trading after the company missed rather than beat lofty sales expectations. Japan’s Nikkei average fell 1%. [.T]
FTSE and European futures were last down 0.2%.
MSCI’s broadest index of Asia-Pacific shares ex-Japan fell 0.7 percent, with the biggest declines in Australia, where interest-sensitive stocks fell after data on Wednesday showed an unexpected rise in inflation. [.AX]
“Australia’s inflation is now broadly the highest among developed countries,” CommSec senior economist Ryan Felsman said, adding that the market was reassessing the risks of further rate hikes.
Australia’s three-year government bond yield rose 18 basis points on Wednesday after inflation accelerated to a six-month high in May, and rose a further seven basis points to 4.18% on Thursday following an overnight sell-off in U.S. Treasuries.
Swaps markets are estimating there is about a 40% chance that Australia’s central bank will raise interest rates by 25 basis points in August, up from about 10% before inflation expectations.
The unexpected rise in Australian inflation follows an equally unexpected jump in Canadian inflation, causing further anxiety as markets await the next release of the Federal Reserve’s preferred U.S. inflation gauge on Friday.
Later on Thursday, attention will be focused on the final US GDP result, European confidence indicators, a speech by the Deputy Governor of the Australian central bank and a Swedish interest rate decision ahead of the first US presidential debate.
Dollar closes in on Asia
In foreign exchange markets, U.S. yields have supported the dollar, especially against the yen and yuan, which have the widest spreads to domestic yields.
China’s yuan fell to a seven-month low of 7.689 to the dollar after the central bank softened the yuan’s trading band and data showed industrial profit growth had slowed sharply.
The yen, which slumped to a record low of 171.79 yen per euro on Wednesday, was weaker in Asia at 171.57 yen and at 160.4 yen per dollar, weaker than the levels that prompted Japanese intervention in April and May.
Japan’s 10-year government bond yield rose 5.5 basis points to 1.075% on Thursday as the decline, the weakest in real terms in the past 50 years, raised expectations for a policy response from the Bank of Japan, Thomas Matthews of Capital Economics said. [JP/]
Finance Minister Shunichi Suzuki reiterated that the government is concerned about the impact of a weak yen on the economy and is closely monitoring currency markets.
The New Zealand dollar fell a further 0.1 percent to a six-week low of $0.6069 on Thursday after dropping overnight, while the pound slid to a six-week low of $1.2613.
The dollar index hit a two-month high of 106.13 on Wednesday, up 1.3% from the previous month and about 1.5% from the quarter, as expectations of a U.S. interest rate cut were postponed by persistent inflation and upbeat economic data.
In Tokyo, the benchmark 10-year U.S. Treasury yield rose 1.5 basis points to 4.33%, bringing its quarterly total to 14 basis points. [US/]
In commodities, Brent crude futures fell 0.2% to $85.07 a barrel, for a quarterly decline of 2.8%. Gold fell on rising yields, trading at $2,299 an ounce.
Wheat futures were trading near their lowest in two months on signs of a bumper harvest in the United States and improving weather in Russia.
(Edited by Sri Navaratnam)
