Treasuries Fall on Powell, China Small Caps Slide: Markets Wrap

(Bloomberg) — Treasuries extended Friday’s selloff after Federal Reserve Chair Jerome Powell said policymakers will likely wait beyond March before cutting interest rates. Chinese small cap shares slid as market jitters persisted despite signs of official support.

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US 10-year yields climbed four basis points in Asia after jumping 14 basis points Friday following stronger-than-expected payroll data. The “danger of moving too soon is that the job’s not quite done,” Powell said in an interview on CBS’s 60 minutes that was screened Sunday in the US.

The Treasury declines rippled across Asian bond markets, weighing on government debt in Australia and New Zealand. Chinese government bonds were an outlier, where 10-year yields fell around two basis points.

China’s CSI 1000 gauge of small cap shares tumbled as much as 8.7%, while the benchmark CSI 300 index erased most earlier losses to be down just 0.1%. The declines came despite a statement on Sunday from the China Securities Regulatory Commission saying it would act to prevent abnormal fluctuations, and guide more medium- and long-term funds into the market.

“The medium caps and the small caps are under intense selling pressure as some investors have been betting on more national team support for the big caps,” said Ken Wong, an Asian equity portfolio specialist at Eastspring Investments in Hong Kong, referring to government-related entities that buy domestic stocks. “The long CSI 300 and short CSI 500 and CSI 1000 trade has been one such popular trade.”

Benchmarks in Australia and South Korea also fell. US equity futures edged lower after the S&P 500 Index climbed 1.1% to a new record on Friday. A strong run of performances for the US benchmark comes as February begins — historically one of the rockiest month of the year for US stocks.

Japanese equities bucked the losing trend. Mitsui Fudosan shares jumped after the Financial Times reported Elliott Management had acquired a 2.5% stake in the business and was calling for a share buyback.

The dollar strengthened against most of its major peers after Powell’s hawkish comments. The yen crept lower to trade at around 148 per dollar.

Investor bets for a rate cut in March by the Fed tumbled Friday to around 20% from almost 40% on Thursday, as economic resilience reduces the likelihood of imminent policy easing.

Despite forecasts for a March rate cut weakening, “this market still expects five rate cuts this year,” Ed Yardeni, president of Yardeni Research wrote in a note. “Fed officials are likely to continue to push back against that notion of so much cutting.”

Oil was little changed as traders assessed the impact of US and UK strikes against Houthi targets over the weekend. The Iran-backed Houthis have vowed to respond. West Texas Intermediate was little changed, after falling 7.4% last week, its largest one-week decline since October. Gold fell slightly to trade at around $2,037 per ounce.

Former US President Donald Trump also signaled he may impose a tariff on Chinese goods of more than 60% if elected, in a fresh round of hawkish rhetoric aimed at the largest supplier of goods to the US.

Key events this week:

• Eurozone S&P Global Services PMI, PPI, Monday

• Australia rate decision, Tuesday

• Eurozone retail sales, Tuesday

• Germany factory orders, Tuesday

• Cleveland Fed President Loretta Mester, Philadelphia Fed President Patrick Harker speak, Tuesday

• Bank of England Deputy Governor Sarah Breeden speaks, Wednesday

• Fed Governor Adriana Kugler, Richmond Fed President Tom Barkin speak, Wednesday

• China PPI, CPI, Thursday

• Pakistan general election, Thursday

• ECB Chief Economist Philip Lane, ECB Governing Council member Pierre Wunsch speak, Thursday

• European Central Bank publishes economic bulletin, Thursday

• US initial jobless claims, Thursday

• US Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing, Thursday

• Australian Reserve Bank Governor Michele Bullock delivers parliamentary testimony, Friday

• China aggregate financing, money supply, new yuan loans, Friday

• Germany CPI, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.3% as of 1:10 p.m. Tokyo time. The S&P 500 rose 1.1% on Friday

• Nasdaq 100 futures fell 0.3%. The Nasdaq 100 rose 1.7%

• Japan’s Topix index rose 0.6%

• Hong Kong’s Hang Seng Index fell 0.1%

• China’s Shanghai Composite Index fell 1.8%

• Australia’s S&P/ASX 200 Index fell 1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro was little changed at $1.0780

• The Japanese yen was little changed at 148.36 per dollar

• The offshore yuan was little changed at 7.2141 per dollar

• The Australian dollar was little changed at $0.6508

Cryptocurrencies

• Bitcoin fell 0.2% to $42,663.36

• Ether fell 0.3% to $2,292.48

Bonds

• The yield on 10-year Treasuries advanced four basis points to 4.06%

• Japan’s 10-year yield advanced 5.5 basis points to 0.715%

• Australia’s 10-year yield advanced 12 basis points to 4.10%

Commodities

• West Texas Intermediate crude rose 0.2% to $72.40 a barrel

• Spot gold fell 0.3% to $2,032.88 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Garfield Reynolds and Charlotte Yang.

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