Asian stocks were at risk of falling for a fourth straight session on Wednesday (May 5) as sentiment was struck by a massive sell off of large-cap tech darlings on Wall Street, combined with discussions of raising interest rates Americans.
Holidays in Japan, China and South Korea limited the early reaction, leaving the larger MSCI Asia-Pacific equity index outside of Japan hesitant on either side of stability.
Japan’s Nikkei was closed, but futures were down to 28,735 from the last cash close of 28,812.
Futures on the Nasdaq stabilized after a sharp pullback overnight, while futures on the S&P 500 edged up 0.1%.
The Nasdaq fell 1.9% on Tuesday as some big names in tech embarked on profit taking, including Microsoft Corp, Alphabet Inc, Apple Inc and Amazon.com Inc. [.N]
Stretched valuations were tested when US Treasury Secretary Janet Yellen said rate hikes may be needed to keep the economy from overheating.
She then woke up the comments, but it reminded investors that rates are expected to rise at some point in the future.
“Moderate inflation and a slow moving Fed would continue to support, but inflation and a responsive Fed could prove negative for valuations,” said Tapas Strickland, director of economics at NAB.
“Either way, yields and stocks will likely be in a dance, as much better-than-expected economic data continues to challenge central bank rate forecasts.”
One such challenge looms on Friday when US payroll data is expected to show a sharp increase of 978,000, while some estimates go as high as 2.1 million.
So far Federal Reserve Chairman Jerome Powell has argued that the job market is still far from where it should be to start talking about buying down assets.
Notable dove, Fed Bank Minneapolis chairman Neel Kashkari said on Tuesday that it might take a few years for the economy to return to full employment.
The Fed’s stubborn patience allowed US 10-year bond yields to return to 1.59%, from 1.69% last week, although the market struggled to fall below 1.53%.
The mere mention of the US rate hike was enough to help the dollar recover some of its recent losses.
The euro fell back to $ 1.2015 and threatened to break through significant chart support in the $ 1.1995 / 1.2000 area. A breakout would pave the way for a retracement target at $ 1.1923.
The dollar has been a little firmer against the yen at 109.36, but is facing resistance at 109.61. Against a basket of currencies, the dollar rallied to 91.282 and moved away from a recent two-month low at 90.422.
The New Zealand dollar jumped to $ 0.7160 when local employment data turned out to be stronger than expected.
In commodity markets, palladium hit an all-time high amid concerns over the shortage of metal used in automotive emission control devices.
Gold lagged behind at $ 1,776 an ounce.
Oil prices have hit seven week highs as more countries opened their borders to travelers, improving the outlook for gasoline and jet fuel demand.
Brent added 57 cents to $ 69.49 per barrel, near its highest level since mid-March, while US crude rose 52 cents to $ 66.23 per barrel.