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Asia stocks were mixed on Tuesday as Treasury yields climbed with investors pricing in the start of Federal Reserve tapering and elevated energy prices stoking inflation concerns.  

MSCI Inc.’s index of Asia Pacific stocks snapped a three-day advance. Japan and Australia slid. China and Hong Kong advanced, led by property stocks, after China’s central bank said it will work to safeguard the “healthy” development of the property market amid the China Evergrande Group crisis. U.S. futures fluctuated after the tech-heavy Nasdaq 100 dropped.

The benchmark 10-year U.S. yield topped 1.5%, the highest level since June, and the two-year yield hit an 18-month high as traders increasingly priced in the prospect of the Fed trimming its $120 billion in monthly asset purchases soon. The dollar edged higher.

Oil built on a rally as fears of a global energy crunch intensified. Brent hit $80 a barrel for the first time since October 2018. WTI crude climbed above $76 a barrel. Goldman Sachs Group Inc. said Brent could hit $90 by year-end as the market is in a bigger deficit than many realize.

The spike in yields added to concerns about lofty equity valuations, particularly in the tech industry, which has powered the bull-market rally. Investors have had to contend with a series of risks including cracks in the Chinese property sector and worries about the impact of skyrocketing energy costs on inflation.

“We’ve got a huge risk of rising energy costs,” James Bruderman, 1879 Advisors vice chairman, said on Bloomberg Television. “As we get into the winter season, we see the risk of a little bit of contagion on energy costs and clearly there are some inflationary aspects to that.”

Fed Chair Jerome Powell said Monday the inflation test for scaling back the bond buying has been met, while the employment test “is all but met.” Fed Governor Lael Brainard seperately said the labor market may soon meet her yardstick for scaling back asset purchases, while New York Fed President John Williams noted that moderating bond-buying may soon be warranted.

“Central bankers have set out how they want to ‘normalize’ monetary policy for some time. That process could start soon,” Chris Iggo, chief investment officer for core investments at AXA Investment Managers, said in a note. “The realization of this has the potential to provoke some volatility in rates and equities.” 

Investors will also be keeping an eye on events in Washington where Senate Republicans blocked a bill that would suspend the debt ceiling into December 2022 and keep the government operating past Sept. 30.

Elsewhere, Bitcoin swung between $42,000 and $43,000 after cryptocurrencies made a swift comeback from the turbulence last week triggered by China’s latest crackdown.

• Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen to testify at a Senate Banking Committee hearing Tuesday
• European Central Bank President Christine Lagarde speaks Tuesday at the ECB Forum on Central Banking
• Japan’s ruling party votes to elect leader, Wednesday
• Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday
• House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday
• China Caixin manufacturing PMI, non-manufacturing PMI, Thursday
• Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income Friday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 12:53 p.m. in Tokyo. The S&P 500 fell 0.3%
• Nasdaq 100 futures dipped 0.2%. The Nasdaq 100 fell 0.8%
• Topix index fell 0.5%
• Australia’s S&P/ASX 200 Index fell 1.2%
• Kospi index fell 0.8%
• Hang Seng Index rose 1.5%
• Shanghai Composite Index rose 0.5%
• Euro Stoxx 50 futures were little changed

Currencies

• The Japanese yen was at 111.23 per dollar, down 0.2%
• The offshore yuan traded at 6.4589 per dollar
• The Bloomberg Dollar Spot Index rose less than 0.1%
• The euro was at $1.1692

Bonds

• The yield on 10-year Treasuries rose two basis points to 1.51%
• Australia’s 10-year bond yield climbed about five basis points to 1.46%

Commodities

• West Texas Intermediate crude was at $76.17 a barrel, up 1%
• Gold was at $1,750.10

Source: https://www.bloomberg.com/news/articles/2021-09-27/asia-stocks-to-open-steady-as-treasury-yields-jump-markets-wrap