The Yen jumped 0.4 percent to Dollar, Euro was little changed; Asian stocks declined 

Asian stocks declined with U.S. equity index futures as investors worried surging bond yields after the Federal Reserve’s latest comments on the economy will test equity valuations. The yen advanced for the first time in five days.

Despite the Fed’s latest upbeat assessment on the world’s largest economy, investors chose to focus on the prospect the pace of interest rate increases will speed up. Futures on the S&P 500 Index slipped after a rally fizzled Wednesday following minutes from the Fed’s January meeting showing increasing confidence that economic growth will pick up steam despite its concerns around inflation. Stocks were lower in Japan, Hong Kong and South Korea. Equities in Shanghai rose after missing out on an Asian stock rally because of a week-long Chinese holiday.

“The market is pricing in the possibility of a tighter Fed over time,” Evan Brown, director at UBS Asset Management who previously worked on the open market trading desk at the New York Fed, told Bloomberg TV in New York. On a day-to-day basis “you’re going to see volatility, you’re going to see equities get a little skittish when yields are rising, but as you look over the long term, fundamentals on the economy are very strong.”

Bloomberg’s dollar index pared earlier gains as risk-off sentiment spurred by the prospect of accelerating U.S. rate hikes boosted demand for the yen. The 10-year Treasury yield pulled back from a 2.95 percent high. The amount of Fed tightening priced into the overnight index swap curve for the next 12 months jumped to 74 basis points, the most since May 3, 2010.

February is shaping up as one of the worst months for global equities in more than a year as concerns about a pick-up in inflation and expensive stock prices outweighed evidence of a buoyant U.S. economy, sending U.S. 10-year Treasury yields to four-year highs and roiling shares. Data released after the January meeting underpin the view that inflation is no longer lagging. Fed policy makers next meet on March 20 when they will for the first time consider the January jobs report that indicated rising wages, and consumer prices that surged faster than forecast last month.

“The market is very highly strung at the moment,” Michael Every, head of Asia financial markets research at Rabobank, told Bloomberg TV in Hong Kong. “The mere indication that you might get five extra basis points at the long end suddenly sees everything tumbling again. It’s not a healthy sign really.”

Elsewhere, oil fell to around $61 a barrel and Bitcoin was trading above $10,500. The Korean won lead a decline among Asian emerging-market currencies.

Here are some key events scheduled for this week:

• Fed policy makers still due to speak this week include New York Fed President William Dudley and Atlanta Fed President Raphael Bostic.
• Companies announcing earnings this week include Woolworths, Barclays and Royal Bank of Scotland.

These are the main moves in markets:

Stocks

• Japan’s Topix index fell 0.9 percent at the close in Tokyo and South Korea’s Kospi index retreated 0.5 percent.
• Australia’s S&P/ASX 200 Index finished 0.1 percent higher.
• The Hang Seng Index dropped 1 percent. The Shanghai Composite Index gained 1.9 percent.
• Futures on the S&P 500 slid 0.3 percent. The gauge lost 0.6 percent on Wednesday.
• The MSCI Asia Pacific Index declined 0.7 percent.

Currencies

• The Bloomberg Dollar Spot Index was little changed.
• The yen jumped 0.4 percent to 107.36 per dollar.
• The euro was little changed at $1.2278.
• The Aussie maintained overnight losses at 78.12 U.S. cents.
• The won dropped 0.6 percent to 1,083 per dollar.

Bonds

• The yield on 10-year Treasuries fell one basis point to 2.94 percent.
• The U.S. two-year rate was at 2.26 percent.
• Australia’s 10-year yield rose one basis point to 2.87 percent.

Commodities

• West Texas Intermediate crude lost 0.9 percent to $61.12 a barrel.
• Gold was steady at $1,324.10 an ounce.

Source: Bloomberg – Asia Stocks Slip With U.S. Futures, Yen Rallies: Markets Wrap

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