Friday’s Asian selloff is a fairly direct continuation of Thursday’s US session, where a hotter than expected PPI print and a fresh leg higher in Treasury yields pushed traders to price in a substantially higher chance of a Federal Reserve rate hike at next week’s meeting, up sharply from before the data. Rising yields hit growth and technology names hardest in the US on Thursday, and that same dynamic appears to be carrying through to Asian tech-heavy indices this morning, with South Korea’s Kospi and Japan’s Nikkei both under pressure. The other major thread running through Thursday’s session was oil, with Brent surging more than 6% to briefly trade above $108 a barrel on Iran war-related supply concerns, a move that both adds to inflation pressure and directly weighs on energy-importing economies like Japan and South Korea. With Friday’s US CPI print still to come, markets are likely to stay on edge into the weekend, since a second hot inflation read would further cement rate hike expectations.
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Earlier:
- US stocks close lower as rising yields and $100+ oil prices pressure the indices
- investingLive Americas market news wrap: Oil climbs 7%
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Asian markets are wearing Wall Street’s bad Thursday, with hot inflation data, surging yields and $100-plus oil all pointing the same direction.
Summary:
- Japan’s Nikkei was down around 2% and South Korea’s Kospi around 3% lower as of the latest trading, extending losses from Wall Street’s Thursday session
- US stocks fell for a fourth consecutive session Thursday, with the Dow down 0.60%, the S&P 500 down 0.58%, and the Nasdaq down 0.65%
- US producer prices for final demand rose 0.4% in August, with the annual rate accelerating to 5.4% versus 5.3% expected, following an upwardly revised 0.1% gain in July
- Treasury yields climbed sharply after the PPI report, with the 10-year yield pushing toward 5% and the 30-year yield rising to around 5.31%, its highest level since 2023
- Traders were pricing in roughly a 70% chance of a 25 basis point Fed rate hike at next week’s meeting, up from about 62% before the PPI data
- Brent crude surged more than 6% Thursday to briefly trade above $108 a barrel, extending a rally tied to the Iran war and adding further inflationary pressure
Asian equity markets extended Wall Street’s losing streak into Friday trading, with Japan’s Nikkei down around 2% and South Korea’s Kospi off roughly 3%, as the region absorbed a combination of hotter than expected US inflation data, surging bond yields and a sharp jump in oil prices. The moves follow a fourth consecutive losing session on Wall Street, where the Dow Jones Industrial Average fell 0.60%, the S&P 500 lost 0.58%, and the Nasdaq Composite declined 0.65% on Thursday.
The catalyst for Thursday’s US weakness was a stronger than expected producer price index reading, with final demand prices rising 0.4% in August and the annual rate accelerating to 5.4% against a consensus estimate of 5.3%, following an upwardly revised 0.1% increase in July. The data pushed Treasury yields sharply higher, with the 10-year yield climbing toward the 5% threshold and the 30-year yield rising to around 5.31%, a level not seen since 2023. Higher yields disproportionately weighed on technology and growth stocks in the US session, since these companies rely heavily on future earnings expectations that become less valuable in present-value terms as rates rise, a dynamic that appears to be repeating in Asian trading given the composition of both the Kospi and Nikkei.
The inflation surprise materially shifted interest rate expectations. Traders were pricing in roughly a 70% probability of a 25 basis point Federal Reserve rate hike at next week’s meeting, up from about 62% before Thursday’s data. That repricing, combined with ongoing Treasury buyback operations aimed at managing the yield curve, added to a volatile session for US fixed income markets even as the Treasury Department pressed ahead with a bond purchase program intended to offset some of the upward pressure on borrowing costs.
Compounding the inflation and rates story was a sharp move in oil markets. Brent crude surged more than 6% on Thursday, briefly trading above $108 a barrel before settling near $107.63, extending a rally driven by escalating tension linked to the Iran war and its impact on regional energy infrastructure and shipping. Higher oil prices carry a double edge for markets: they add directly to inflation readings like Thursday’s PPI print, while also acting as a tax on growth for oil-importing economies, a group that includes both Japan and South Korea. With Friday’s US CPI report still to come, the combination of a hawkish rate repricing, elevated bond yields and a firmer oil price is likely to keep both US and Asian markets sensitive to incoming data through the rest of the week.
This article was written by Eamonn Sheridan at investinglive.com.