Asia stocks drop as oil rally fans inflation fears: Markets wrap

Shares in Asia fell as a jump in global oil prices emboldened the higher-for-longer rates narrative, sapping risk sentiment as some markets in the region prepare for a holiday.

The US benchmark oil price hit $95 a barrel for the first time in more than a year after stockpiles fell at a major storage hub. The increase added to concerns that inflation would remain elevated, keeping the 10-year Treasury yield near the 4.6% it reached in the previous session, the highest since 2007.

Equity benchmarks in Japan, New Zealand and Hong Kong fell more than 1%, dragging down a key index of regional shares. Stocks in mainland China edged lower ahead of an extended break for onshore markets, which will close Friday before reopening Oct. 9.

“The market now needs to adjust to higher funding costs, higher duration risk,” Koon How Heng, head of market strategy for United Overseas Bank, said on Bloomberg Television. “The key uncertainty that now complicates matters is of course crude oil prices.”

Chinese developers extended losses after falling to levels not seen since 2011 on Wednesday. Trading in China Evergrande Group was suspended in Hong Kong and bondholders of Country Garden Holdings Co Ltd said they had yet to be paid a coupon due Wednesday.

US futures erased a morning rally in Asia after Wall Street ended Wednesday flat. A widely-watched measure of global equities is poised to notch its tenth consecutive loss, which will match its worst losing streak in a dozen years.

September has reasserted its tough reputation. It’s shaping up as the worst month for global stocks in a year, while the 10-year Treasury yield has also risen by the most in that period. An index of US investment grade corporate bonds has suffered its biggest monthly drop since February, pulling the benchmark to a loss for 2023.

The Bloomberg dollar index was steady after touching the highest level since November. The index has climbed for six sessions in a row, its longest run of advances in a year. Meanwhile, the yen strengthened slightly on Thursday but remained near 150 per dollar.

Japan’s 20-year yield rose to the highest since 2014, while Australian and New Zealand rates also gained.

Neel Kashkari, Minneapolis Federal Reserve President, said a potential US government shutdown and the effects of the autoworker strike may slow the economy, requiring less aggressive moves from the central bank.

“If these downside scenarios hit the US economy, we might then have to do less with our monetary policy to bring inflation back down to 2%,” Kashkari said in an interview on CNN.

Fed Chair Jerome Powell and a handful of other central bank officials are set to speak later Thursday. Data on the docket for release include US gross domestic product and initial jobless claims ahead of the personal consumption expenditures price on Friday, the Fed’s preferred inflation gauge.

Global stocks also face the risk of further selling linked to a large options position held by a JPMorgan Chase & Co. equity fund. Tens of thousands of protective put contracts held by the fund will expire Friday at a strike price not far below the current level of the S&P 500, creating the potential for market dislocations.

Elsewhere, gold was little changed after a run of declines this week while Bitcoin traded above $26,000.

Key events this week:

Eurozone economic confidence, consumer confidence, Thursday
US initial jobless claims, GDP, Thursday
Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
Eurozone CPI, Friday
Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
ECB President Christine Lagarde speaks, Friday
New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.1% as of 2:04 p.m. Tokyo time. The S&P 500 was little changed
Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.2%
Japan’s Topix fell 1.6%
Australia’s S&P/ASX 200 was little changed
Hong Kong’s Hang Seng fell 1.1%
The Shanghai Composite rose 0.1%
Euro Stoxx 50 futures were little changed