SYDNEY: Asian equities looked set to decline for a second day after a resurgence in growth worries contributed to a tumble in US stocks and a surge in haven assets like Treasuries and the yen.
Futures pointed lower for shares in Japan, China, Hong Kong and Australia. The S&P 500 Index lost 3.2% and the 10-year Treasury yield fell to 2.91% as concern mounted that little progress has been made to ease the trade war.
Financial shares sank as the yield curve continued to flatten, with the latest nudge from a hawkish comment by a Federal Reserve official.
Adding to the risk aversion was news that UK. Prime Minister Theresa May’s push to avoid a so-called “hard Brexit” may be at risk.
“Today’s move feels like the market is a scorned lover. It had believed, for whatever reason, that progress was being made at the G-20 and that turns out to be murky – it feels lied to,” said Michael Antonelli, a managing director at Robert W Baird & Co. “Then a pile of negative Brexit news, Williams starts to ramp up hawkish talk, then we have our yield curve acting like it got run over and boom, we puke.”
The breach of a key technical level for US stocks saw losses accelerate on increased volume after futures on the S&P 500 dropped below their 200-day moving average.
President Donald Trump suggested Tuesday that he could extend a 90-day truce in his trade war with China, while his top White House economic adviser backtracked from the president’s announcement that Beijing had agreed to reduce tariffs on US-made cars.
The developments again called into question the extent of a trade agreement the White House said Trump had struck with Chinese President Xi Jinping over dinner at the Group of 20 summit on Saturday.
US growth concern is causing some traders to bet that the Fed will cut interest rates as soon as 2020. The swaps market has brought forward the timing for when it sees the hiking cycle peaking, toward the end of 2019 or early 2020, a period when the Fed’s own projections indicate tightening will still be under way.
“Any breakthroughs on trade also brings the Fed back into the picture,” Dan Skelly, Morgan Stanley equity model portfolio solutions head, said on Bloomberg TV. “You saw the market pop on both the dovish Fed – or a perceived dovish Fed, if you will – as well as the trade headlines. And it’s hard to have both, in our opinion. And so these positive updates potentially on trade just bring the Fed back even faster.”
Elsewhere, oil fell as doubts about Opec’s appetite for production curbs exacerbated signs of swelling American surpluses.