Bond yields climb, stocks under pressure as Fed cut doubts resurface

Bond yields climb, stocks under pressure as Fed cut doubts resurface

By Kevin Buckland

TOKYO (Reuters) – U.S. Treasury yields rose to a near four-week high on Wednesday, sending Asia-Pacific peers and the dollar higher while putting pressure on stocks as data sowed new doubts about the timing and magnitude of the Federal Reserve’s rate cuts.

Crude oil rose for a fourth day to its highest level in four weeks, as OPEC+ reportedly maintained its production cuts at a meeting on Sunday.

Benchmark U.S. 10-year yields rose to 4.556% during Tokyo trading hours, a level not seen since May 3, following poorly received two- and five-year Treasury auctions overnight.

Japanese equivalent yields rose to their highest level since December 2011 at 1.065%, while Australian yields jumped to their highest level in more than three weeks at 4.42%.

Investors were also taken by surprise by the marked improvement in the American consumer confidence index for the month of May. Economists had predicted a fourth straight month of weaker confidence, particularly after a lukewarm reading of Friday’s results from a similar University of Michigan survey.

This has led the market to question the strength of the economy and strong inflationary pressures, which is clouding the outlook for Fed policy.

Traders currently put the odds of at least a quarter point cut in interest rates by September at 44% based on the data, compared to a draw a day earlier, according to the FedWatch tool from the CME group.

The dollar hit a four-week high of 157.41 yen on Wednesday, while gaining 0.07% against the euro and pound sterling.

The Australian dollar, however, gained 0.08% to $0.66545, supported by data showing an unexpected rise in local consumption inflation last month.

“The fact that upcoming US economic news sees the money market pendulum swinging back in favor of a US rate cut in the third quarter” will be key to whether the Aussie can maintain its upward momentum, wrote strategists at the National Australia Bank in a customer note.

“Our starting point is ‘yes, it will’ – we still have September for a first Fed easing, and then another by the end of the year.”

Regional stock markets were mostly lower on Wednesday, with the notable exception of mainland China.

Japan’s Nikkei fell 0.4%, Australia’s benchmark fell more than 1%, while Hong Kong’s Hang Seng fell 1.2%.

However, the continent’s blue chips gained 0.3%

MSCI’s broadest index of Asia-Pacific shares fell 0.8%.

U.S. S&P 500 futures pointed to a 0.2% decline after a flat end Tuesday for the currency index.

In energy markets, Brent crude futures for July delivery rose 27 cents, or 0.3%, to $84.49 a barrel. U.S. West Texas Intermediate futures for July rose 35 cents, or 0.4%, to $80.18.

(Reporting by Kevin Buckland; editing by Sam Holmes)

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