US Treasury yields pushed to a near four-week peak on Wednesday, lifting their Asia-Pacific counterparts and the dollar while pressuring equities, as data sowed new doubts about the timing and extent of Federal Reserve rate cuts.
Crude oil rose for a fourth day to reach a four-week high amid speculation OPEC+ will maintain production cuts at a meeting this Sunday.
Benchmark US 10-year yields ticked as high as 4.556 per cent in Tokyo trading hours, a level not seen since May 3, following poorly received two- and five-year Treasury auctions overnight.
Equivalent Japanese yields hit the highest since December 2011 at 1.065 per cent, while Australian yields jumped to a more than three-week top at 4.42 per cent.
Investors were also caught off-guard by a sharp improvement in a US consumer confidence measure for May. Economists had predicted a fourth straight month of weaker confidence, particularly after a tepid reading for the University of Michigan’s analogous survey result from Friday.
That has kept the market guessing about the strength of the economy and sticky inflationary pressures, which in turn cloud the outlook for the Fed’s policy path.
Traders currently put the odds of at least a quarter-point interest rate cut by September at 44 per cent following the data, from a coin toss a day earlier, according to the CME Group’s FedWatch Tool.
The dollar rose to a four-week peak of 157.41 yen on Wednesday, while gaining 0.07 per cent against both the euro and sterling.
Australia’s dollar though added 0.08 per cent to $US0.6654 ($A0.9994)5, bolstered by data showing an unexpected jump in local consumer inflation last month.
“Whether incoming US economic news sees the money market pendulum swing back in favour of lower US rates in Q3” will be key to whether the Aussie can retain its upward momentum, National Australia Bank strategists wrote in a client note.
“Our base line view is ‘Yes it will’ – we still have September for a first Fed easing, then another by year-end.”
Regional stock markets were mostly lower on Wednesday, with the notable exception of mainland China.
Japan’s Nikkei slipped 0.4 per cent, Australia’s benchmark dropped more than 1.0 per cent, while Hong Kong’s Hang Seng tumbled 1.2 per cent.
However, mainland blue chips gained 0.3 per cent
MSCI’s broadest index of Asia-Pacific shares dropped 0.8 per cent.
US S&P 500 futures pointed 0.2 per cent lower following a flat finish on Tuesday for the cash index.
In energy markets, Brent crude futures for July delivery rose 27 cents, or 0.3 per cent, to $US84.49 ($A126.91) a barrel. US West Texas Intermediate futures for July climbed 35 cents, or 0.4 per cent, to $US80.18 ($A120.43).
This post was originally published on Michael West.