SYDNEY: Asian equities dropped in the wake of the biggest slide in stocks on Wall Street since the mid-October downdraft, though U.S. futures advanced after China officially echoed President Donald Trump’s optimism over bilateral trade talks.
Losses eased as the trading session wore on for stocks across the region and declines from Sydney to Shanghai were less than the 3.2 percent tumble in the S&P 500 Index.
After days of silence on Saturday’s agreement between Trump and President Xi Jinping, China’s Commerce Ministry said that trade negotiations will proceed based on a timetable and that the country will implement specific items as soon as possible. For his part, Trump tweeted that there will be a “real deal” with China, or none at all.
Putting a damper on any trade optimism has been a sharp decline in 10-year Treasury yields, to 2.91 percent, which has further flattened the yield curve and served warning that bond traders are anticipating weaker growth. That’s even after Federal Reserve Bank of New York President John Williams on Tuesday reiterated his support for further interest-rate increases and gave an optimistic view of the economy.
The shrinking gap between short-dated U.S. yields and long rates hammered financial shares on Tuesday, and a similar dynamic was seen in Tokyo Wednesday as already-ultra-low Japanese 10-year yields dropped. Adding to the risk aversion overnight was news that U.K. Prime Minister Theresa May’s push to avoid a so-called “hard Brexit” may be at risk.
The breach of a key technical level for U.S. stocks saw losses accelerate on increased volume after futures on the S&P 500 dropped below their 200-day moving average. The closure of American markets Wednesday might also have left some traders seeking to avoid open positions over the break to mark the passing of former President George H.W. Bush.
Despite recent official data showing continued solid U.S. growth, some traders are betting that the Fed will cut interest rates as soon as 2020. The swaps market has brought forward the timing for when it sees the hiking cycle peaking, toward the end of 2019 or early 2020, a period when the Fed’s own projections indicate tightening will still be under way.
Elsewhere, Australia’s dollar slid after weaker-than-anticipated economic growth for the third quarter. Oil prices fell back below $53 a barrel in New York. - Bloomberg
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