Asian stock markets were shaken on Tuesday, under pressure from rising oil prices and bond yields, with investors preparing for an expected hike in interest rates in Australia, and with expectations that short-term borrowing costs will remain at high levels for years.
The yield on 10-year US Treasury bonds jumped to more than 5.27 percent during trading on Monday, the highest level in 19 years, recording an increase of nearly 50 basis points during September, in the largest monthly bond selling wave in two years.
The two-year US bond yield rose at a greater pace, adding more than 57 basis points since the beginning of the month to around 5 percent, with markets awaiting the impact of strong growth and inflation in the United States on the path of interest rates.
Sovereign bond yields constitute a main reference for global markets, as they are a guide price for investment in the riskiest assets, in addition to their impact on the cost of mortgages and borrowing for companies. Its rise leads to increased pressure on the budgets of governments, companies and families.
On Wall Street, a $150 billion share buyback plan announced by Nvidia limited the decline of the interest-rate-sensitive Nasdaq index, which fell 0.9 percent during Monday’s trading.
In Asia, bond markets in Japan, South Korea and Australia came under pressure, while most regional stock markets declined.
Angus Hui, head of fixed income at Fullerton Fund Management in Singapore, said that markets are heading into a “new environment” in terms of expected returns and levels of bond yields.
He added that the rise in interest payments as part of government budgets in many advanced economies increases pressure on public finances, and may limit the recovery of bond markets even if the global economy slows.
He said bond yields were unlikely to return to the very low levels of previous years.
In energy markets, Brent crude futures settled at $106.60 per barrel with a trend upward, in light of no signs of a breakthrough in the Middle East crisis.
In China, the state of anxiety in the technology sector, after stocks were affected Monday by American plans to ban Chinese components in data centers, kept the CSI 300 index of leading stocks near its lowest level in a year.
In the artificial intelligence sector, the prospectus for the offering of the American company Anthropic showed the size of the financial bets on the sector, as the company targets a valuation of two trillion dollars, while it plans to spend $518 billion on computing and infrastructure to support its expansion plans.
In currency markets, the dollar and major currencies moved in limited ranges during Asian trading, while the dollar is heading for monthly gains.
The yen rose on Monday after Japan's chief currency official warned traders not to ignore the signal sent by Tokyo and Washington last week regarding shared concern about the weakness of the Japanese currency. The yen settled at 157.31 against the dollar, while the euro reached $1.1367.
The Australian dollar stabilized at $0.7012, after markets became almost fully priced in. The Reserve Bank of Australia raised interest rates, along with another hike by February.
Interest rate strategists at Westpac, Damian McCullough and Uma Choudhary, said they wonder whether the Governor of the Australian Reserve Bank will be able to adopt a hawkish enough tone to confirm current market expectations, especially if the decision to raise rates is not unanimous.
South Korean stocks stabilized in trading on Tuesday, with gains in chip companies offsetting losses in other sectors, while investors awaited local trade data and Micron Technology results for indications about demand for artificial intelligence chips.
The KOSPI index fell 5.34 points, or 0.08 percent, to 6884.40 points by 01:43 GMT.
Samsung Electronics shares rose 1.76 percent, while SK Hynix shares increased 0.51 percent, driven by expectations of continued strong demand for chips related to artificial intelligence.
A Samsung executive said that high-bandwidth memory (HBM) chips are expected to represent about 30 percent of the total production capacity of dynamic memory (DRAM) chips at chip manufacturers next year, up from about 20 percent currently.
Investors are awaiting September Korean trade data, along with Micron's results later in the week, for additional indications of demand for AI chips.
A Reuters poll showed that South Korean exports are likely to rise for the sixteenth consecutive month in September, supported by demand for chips related to artificial intelligence, although the growth rate is expected to slow due to the decrease in the number of working days.
In contrast, most other leading stocks declined. The shares of LG Energy Solutions, a battery maker, fell by 3.16 percent, while the shares of Hyundai Motor and Kia fell by 1.55 and 2.47 percent, respectively.
The shares of the steel company “Posco Holdings” also fell 3 percent, while the shares of “Samsung Biologics” fell 2.36 percent.
Of the 907 shares traded, 162 shares rose compared to 702 shares that declined, while foreign investors recorded net share sales worth 941.8 billion won ($692.5 million).
On the exchange market level, the Korean won fell 0.04 percent to 1,360.4 won to the dollar, compared to 1,359.9 won at the previous close.
In the bond market, the three-year Korean Treasury bond yield, the most widely traded, fell 1.6 basis points to 4.094 percent, while the ten-year bond yield fell 2.2 basis points to 4.522 percent.
Gold prices stabilized on Tuesday, near their lowest levels in more than seven weeks, as investors awaited a series of US economic data this week, amid fears that the Federal Reserve will keep interest rates high for a longer period.
Gold settled in spot transactions at $4,124.57 per ounce by 01:40 GMT, after recording in the previous session its lowest levels since August 5. US gold futures fell 0.3 percent to $4,156.70.
Christopher Taher, chief market strategist at Exness, said that geopolitical developments will remain “crucial for gold,” explaining that continued tensions may keep energy prices and bond yields high, while tangible progress towards reducing escalation may ease pressures.
American and Iranian officials spoke separately with mediators as part of renewed efforts to end the war that has been ongoing for seven months.
Meanwhile, oil prices rose for the second straight session as concerns persist about supply disruptions from the Middle East.
High oil prices lead to increased inflationary pressures by raising the costs of various sectors of the economy, which may prompt central banks to keep interest rates high to contain price pressures.
Although gold is traditionally seen as an inflation hedge, it is under pressure in a high interest rate environment, as yielding investments tend to lure investors away from the non-yielding metal.
Markets are currently pricing in a 70.3 percent chance that the Federal Reserve will raise interest rates in October, according to CME's Fed Watch tool.
Lesia Cook, a member of the Federal Reserve Board of Governors, said that she expects inflationary pressures to continue in the coming months due to demand related to artificial intelligence and high oil prices, without indicating that this will require further raising interest rates.
This week, investors' eyes are turning to a set of US economic data, including job opportunities, the ADP jobs report, personal consumption expenditures data, in addition to the non-farm payrolls report, in search of new indicators regarding the path of monetary policy.
Taher said that continued price pressures in conjunction with the strength of economic activity will enhance expectations that central banks need to continue their restrictive monetary policy, which will keep bond yields high and make gold vulnerable to further losses.
In other precious metals, silver fell in spot transactions 0.6 percent to $60.62 per ounce, platinum fell 1 percent to $1,699.86, while palladium fell 0.5 percent to $1,209.08.
