Asian stocks fall, yields rise as markets brace for aggressive Fed

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TOKYO: Stocks in Asia fell and bond yields rose Wednesday as investors braced for another aggressive rate hike by the US Federal Reserve later in the day.

Japan’s Nikkei fell 1.26 percent, reaching a two-week low. The Australian benchmark stock index fell 1.35 percent and South Korea’s Kospi fell 0.9 percent.

Chinese blue chips fell 0.82 percent, while Hang Seng in Hong Kong lost 1.26 percent.

MSCI’s broadest index of stocks in Asia-Pacific lost 1 percent.

That follows an overnight sell-off on Wall Street that closed 1.13 percent of the S&P 500, although futures pointed to a slightly higher open on Wednesday.

The Fed headlines a week with more than a dozen central banks announcing policy decisions, including the Bank of Japan and the Bank of England on Thursday.

Sweden’s Riksbank surprised markets overnight with a full percentage point gain and warned of more in the next six months.

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Despite this, bets on a Fed tightening remained stable.

Markets estimate an 81 percent chance of another 75 basis point gain and see a 19 percent chance of a full percentage point gain.

Global yields rose amid expectations of further tightening.

Two-year Treasury yields hit a 15-year high at 3.992 percent on Tuesday and remained high at 3.9516 percent in Tokyo trading, while 10-year Treasury yields hit its highest point in more than a decade.

It reached 3.604 percent for the first time since April 2011, and was 3.5473 percent last.

Australia’s 10-year benchmark return rose to a three-month high of 3.789 percent, and South Korea’s equivalent return hit its highest since April 2012.

Markets are “seemingly well positioned for a 75 basis point increase alongside an aggressive update” from the Fed, Taylor Nugent, a market economist at the National Australia Bank in Sydney, wrote in a client note.

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“The post-meeting commentary and the updated dots will be critical,” Nugent said, adding that the NAB was looking for a key rate of “about 4 percent” by the end of this year with no expected rate cuts through 2024.

The US dollar index, which measures the currency against six major competitors, rose slightly higher to 110.22 and returned to its 20-year high of 110.79 this month.

The greenback had changed little at 143.64 yen, after trying 145 twice this month, a level last seen 24 years ago.

This week, the BOJ will bolster its position as the sole dove among the central banks of advanced economies by sticking to its ultra-accommodative policy of keeping 10-year Japanese government bond yields close to 0 percent.

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The Bank on Wednesday offered to buy 250 billion yen worth of bonds in an unplanned operation to keep interest rates in check.

Sterling languished around $1,1372, and stayed close to Friday’s 37-year low of $1,1351.

Markets are split on whether the BOE will choose a 50 or 75 basis point gain on Thursday.

Meanwhile, crude oil continued to decline, fears aggressive tightening by the Fed and other central banks would dampen growth and slow demand.

Brent crude futures fell 26 cents to $90.36 a barrel after falling from $1.38 the previous day.

US West Texas Intermediate crude was $83.74 a barrel, down 20 cents. The October supply contract expired $1.28 Tuesday, while the more active November contract lost $1.42.

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