Nov 13, V7N-Asian stocks fell sharply on Wednesday as rising U.S. bond yields unsettled investors ahead of key inflation data, which could influence the Federal Reserve's monetary policy. Short-term Treasury yields surged to their highest levels since late July after reopening following the Veterans Day holiday, boosting the U.S. dollar to a three-month high against the yen.

Expectations of increased fiscal deficits and government borrowing under U.S. President-elect Donald Trump's proposed tax cuts and tariffs have driven up bond yields. Analysts fear these policies could fuel inflation and hinder the Federal Reserve's rate-cutting plans. While these expectations previously lifted U.S. equities to record highs, the rally has stalled as rising bond yields pressure stock valuations.

Kyle Rodda, senior analyst at Capital.com, described the phenomenon as part of the "Trump trade," emphasizing that increased deficit spending has triggered a tug-of-war between equities and bonds.

Cryptocurrency and Commodities
Bitcoin continued its climb toward its record high, reaching $88,195 as markets anticipated Trump's promises of a crypto-friendly regulatory environment. Meanwhile, commodities remained under pressure, reflecting investor concerns about China's economic outlook amid the threat of U.S. tariffs.

Copper prices dropped 2%, marking a two-month low, while crude oil hovered near its weakest levels this month. Brent crude traded at $72 per barrel, and WTI crude at $68.26, with OPEC's lowered oil demand forecast highlighting weakness in China and other regions.

Asian Market Performance

  • Hong Kong's Hang Seng Index (.HSI) fell 0.9%, with Chinese property stocks sliding 1.3%.
  • Japan's Nikkei (.N225) and South Korea's Kospi (.KS11) both dropped over 1%.
  • Australia's ASX 200 (.AXJO) slipped 1.1%, led by declines in commodity shares.
  • China's blue-chip index (.CSI) remained flat.

The two-year U.S. Treasury yield rose to 4.367%, the highest since late July, while the 10-year yield hovered at 4.43%. The dollar climbed to 154.94 yen, its strongest since late July, before settling at 154.56 yen, close to the level that could prompt Japanese intervention.

The U.S. dollar index held near a six-month high of 106.17, while the euro traded at $1.0625 after hitting a one-year low of $1.0595.

Traders currently assign a 60% probability of a 0.25% rate cut at the Federal Reserve's December 18 meeting, down from 77% a week earlier. A hotter-than-expected reading of the U.S. Consumer Price Index (CPI) could further diminish these expectations.

Gold prices edged up 0.4% to $2,607 per ounce after dropping to a nearly two-month low in the prior session, weighed down by the stronger dollar.

Investors will closely monitor U.S. inflation data and potential policy moves to assess the market's trajectory amid ongoing uncertainties.

END/BUS/RH/