Asian stocks track US drop in tech, inflation risks

The Federal Reserve will not cut interest rates again until July because of inflation risks.

Equities opened lower in Sydney and Tokyo, sending regional gauges lower. A decline in big tech weighed on US trading, while Nvidia Corp. as a product presentation. More than 6% had sunk and investors wanted more. U.S. contracts were steady after the S&P 500 fell more than 1% following a report on U.S. service providers that showed the highest price gauge since early 2023.

Treasuries were little changed after crossing the curve in the previous session. The $39 billion sale of 10-year bonds marked the highest yield since 2007.

“Rising yield stocks are not necessary until the economy starts to fail. Then all bets are off,” said Kenny Polcari at Slatestone Wealth. “But rising yields will be an issue if inflation rears its ugly head.”

Traders, who had recently fully priced in another Fed rate cut through March through the end of September, canceled wagers that there would be one until the second half of the year. Separate data on Tuesday showed job openings rose to a six-month high in November, boosted by a jump in business services – while other industries showed more mixed demand for workers.

For Mark Strieber at FHN Financial, the latest US services report backs up the Fed’s recent communication that a rate cut is likely in 2025 due to inflationary risks. Atlanta Fed President Rafael Bostic said officials should be cautious given the uneven progress in reducing inflation.

With Treasury yields rising again, Bank of America Corp. Strategists predict that traders may return to interpreting strong economic data as negative, as it signals that the Fed will need to keep rates elevated for longer. Options point to a rise in US 10-year yields of up to 5% – a level not seen since October 2023.

Back in Asia, investors in China’s $11 trillion government bond market have never been more pessimistic. Yields on 10-year Chinese sovereign bonds have fallen to all-time lows in recent weeks, creating an unprecedented 300-basis-point gap with US peers, despite several economic stimulus measures announced by President Xi Jinping’s government.

Samsung Electronics Co.’s earnings missed estimates due to a costly effort to regain market share in the key AI chip and smartphone arenas.

Hong Kong banks, including HSBC Holdings Plc and Standard Chartered Plc, are hoarding cash and liquidity despite calls by the government to help struggling small businesses with funds to revive the city’s ailing economy. They had a total liquidity coverage ratio of over 180% in the second quarter, the highest ever and almost double the 100% requirement.

Oil prices rose for a second day on Wednesday and bitcoin traded below $100,000 after an industry report pointed to further declines in US inventories.