US Treasury yields surged to nearly a four-week high on Wednesday, impacting Asia-Pacific counterparts and boosting the dollar, while putting pressure on equities. This shift was driven by data that reignited uncertainties about the timing and extent of potential Federal Reserve rate cuts, according to Reuters.
Crude oil prices increased for the fourth consecutive day, reaching a four-week peak.
The benchmark US 10-year Treasury yield climbed to 4.56% during Tokyo trading hours, the highest level since May 3, following poorly received auctions for two- and five-year Treasuries overnight.
Japanese equivalent yields reached 1.07%, the highest since December 2011, while Australian yields rose to a three-week high of 4.42%.
Investors were surprised by a significant improvement in US consumer confidence for May, contradicting economists’ expectations of a fourth consecutive month of weaker confidence, especially after a lukewarm University of Michigan survey result on Friday.
This unexpected data has added uncertainty regarding the strength of the economy and persistent inflationary pressures, complicating the outlook for the Fed’s policy decisions.
According to the CME Group’s FedWatch Tool, traders now see a 44% chance of at least a quarter-point interest rate cut by September, down from a near-even chance the previous day.
On Wednesday, the dollar hit a four-week high of 157.41 yen while also gaining approximately 0.1% against the euro and sterling.
The Australian dollar fell slightly to $0.6646, reversing earlier gains after an unexpected rise in local consumer inflation last month.
National Australia Bank strategists noted in a client report that the future direction of US economic news will be critical for the Australian dollar, particularly regarding the potential for lower US rates in the third quarter. They maintain a baseline view that the Fed will ease rates in September, with another cut by year-end.
Regional stock markets declined on Wednesday, except in mainland China.
Japan’s Nikkei dropped 0.8%, Australia’s benchmark index fell 1.2%, and Hong Kong’s Hang Seng decreased by 1.8%.
Mainland Chinese blue chips edged up 0.1% following the IMF’s upgrade to China’s economic growth forecasts.
The MSCI’s broadest index of Asia-Pacific shares fell by 1.4%.
In the US, S&P 500 futures pointed to a 0.4% decline after a flat close for the cash index on Tuesday.
UK FTSE futures were down 0.5%, and German DAX futures fell 0.3%.
In energy markets, Brent crude futures for July delivery rose by 18 cents (0.21%) to $84.40 a barrel, while US West Texas Intermediate futures for July increased by 29 cents (0.36%) to $80.12 a barrel.
