(Bloomberg) -- Stocks in Asia were poised to decline Thursday after US shares fell and Treasuries rallied as investor fears about a slowing global economy overshadowed optimism that central banks will slow policy tightening.
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Shares edged lower in Australia, futures for Hong Kong and Japan fell, and a gauge of US-listed Chinese companies slumped 2.5%. The S&P 500 closed Wednesday 1.6% lower, the biggest decline in a month.
Contracts for Japanese indexes led declines among Asian futures, falling around 1% as they reflected upward pressure on the nation's currency after the central bank left policy settings unchanged. Traders will again be focused on the benchmark 10-year Japanese government bond yield, amid expectations that it may start creeping back to toward the target ceiling of 0.5% after a sharp drop on Wednesday.
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Yields in Australia and New Zealand opened lower, reflecting moves in Treasuries during the US session, when investors scurried to haven assets. Yields on 10-year Treasuries fell 18 basis points, the most in two months. The risk-off moves were driven by gloomy data and break with a prior dynamic where poor economic news has boosted riskier assets on the belief central banks will slow rate hikes.
Data released Wednesday showed US consumers losing steam and business investment falling, heightening concerns that the economy may be moving closer to recession. Producer prices slid by the most since the start of the pandemic and retail sales fell by the most in a year. This didn't deter Federal Reserve officials reaffirming the need to continue tightening monetary policy.
"While risk assets have had a positive start to 2023, with investors encouraged by signs of fading inflation and a swift reopening in China, it remains possible that the rally is a 'head fake,' and that economic data will ultimately disappoint," Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote. "The lagged effect of higher rates could represent a greater drag on growth than expected."
Market pricing for the terminal Fed funds rate fell by more than 50 basis points from a day earlier in a sign investors are anticipating a rapid slowdown to Federal Reserve interest rate hikes. Comments from Fed officials Wednesday, however, repeated calls for more hikes even after further signs the economy was softening and inflation cooling.
St. Louis Fed President James Bullard said policy was not yet in restrictive territory and projected a forecast rate of up to 5.5% by the end of the year in the Fed's dot plot projections. is "almost" in restrictive territory but not quite. Cleveland Fed President Loretta Mester said the Fed needs "keep going" and Philadelphia Fed chief Patrick Harker repeated his view of lifting interest rates in quarter-point increments "going forward."
In corporate news, Microsoft Corp. said it plans to cut 10,000 jobs, taking steps to cope with an increasingly bleak outlook. Bank of America Corp. started telling executives to pause hiring except for the most vital positions. Crypto firm Genesis Global Capital is said to be laying the groundwork for a bankruptcy filing.
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Key events this week:
US housing starts, initial jobless claims, Philadelphia Fed index, Thursday
ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday
Fed speakers include Susan Collins and John Williams, Thursday
Japan CPI, Friday
China loan prime rates, Friday
US existing home sales, Friday
IMF's Kristalina Georgieva and ECB's Lagarde speak in Davos, Friday
Here are some of the main market moves:
Futures for the S&P 500 were little changed as of 8:33 a.m. Tokyo time. The S&P 500 fell 1.6%
Futures for the Nasdaq 100 were little changed. The Nasdaq 100 fell 1.3%
Nikkei 225 futures fell 1%
Hang Seng futures fell 0.8%
Australia's S&P/ASX 200 index fell 0.1%
Bloomberg Dollar Spot Index was little changed at 1,227.00
The euro was little changed at $1.0795
The Japanese yen rose 0.3% to 128.52 per dollar
The offshore yuan was little changed at 6.7671 per dollar
The Australian dollar was little changed at $0.6945
The yield on 10-year Treasuries declined 18 basis points to 3.37%
Australia's 10-year yield declined 11 basis points to 3.43%
West Texas Intermediate crude fell 0.6% to $79.04 a barrel
Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
(An earlier version of this story was corrected to show bond yields fell)
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