(Bloomberg) — Asian stocks followed U.S. stocks lower as U.S. Treasuries fell sharply as bets that the Federal Reserve will delay a rate cut and worries about China’s economic slump dented sentiment.
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MSCI’s regional stock index fell 0.6%. It was about to post its biggest one-day drop in more than two weeks. China’s benchmark stock index fell to its lowest since September as investors worried that government stimulus measures would fail to revive the economy. The S&P 500 fell more than 1% on Tuesday as a report on U.S. service providers showed inflation hit its highest level since early 2023.
“We have to ask whether there is a reason to buy risk today, and based on developments overnight, I don’t think there is,” said Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne.
Regional economic uncertainty is denting investor optimism, with Chinese markets increasingly concerned about a deflationary spiral. Meanwhile, credit yield premiums are near their lowest levels since the global financial crisis, testing investor appetite for the deluge of deals flooding global debt markets.
Investors in China’s $11 trillion government bond market have never been more pessimistic. The country’s 10-year Treasury bond yield has fallen to historic lows in recent weeks and is now more than 300 basis points below its U.S. peers. This is despite a series of economic stimulus measures announced by President Xi Jinping’s government.
On Wednesday, China maintained tight control over the yuan through a daily reference exchange rate. The People’s Bank of China set the so-called midpoint at 7.1887 per dollar, 1,528 points higher than the average forecast in a Bloomberg survey of traders and analysts. The widening gap suggests policymakers are intent on preventing a rapid sell-off in the yuan.
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South Korean stocks bucked the trend and fell, driven by Samsung Electronics Co. confidence.
Asian government bonds were little changed after falling on Wednesday. The 10-year Treasury yield remains near its highest level since April after jumping 6 basis points on Tuesday.
“Given that the trough in yields has fallen by more than 100 basis points and was in March,” J.P. Morgan strategists Jay Barry, Jason Hunter and Phoebe White wrote, Two months ago, we thought this should also help yields find greater stability in the coming weeks.
