Mumbai, 27 Jun (Commoditiescontrol): Asian shares declined on Thursday as bond yields surged, driven by inflation fears, while the yen's continued slide past 160-per-dollar had currency traders anticipating intervention from Japan.
The dollar reached six-week highs against the sterling and the kiwi, trading at 160.7 yen, just below Thursday's 38-year peak. This nervous atmosphere particularly affected frothy sectors of the financial markets, with Nasdaq futures dropping 0.5%.
Shares in Micron Technology, a leading chipmaker, fell 8% in U.S. after-hours trading after meeting revenue expectations rather than surpassing them. Japan's Nikkei dropped 1%, and MSCI's broadest index of Asia-Pacific shares outside Japan declined 0.5%, with significant losses in Australia. Australian rate-sensitive stocks fell following a surprise increase in inflation, as reported on Wednesday.
Australian three-year government bond yields surged 18 basis points on Wednesday after May's inflation hit a six-month high, rising another 10 bps on Thursday to 4.21%, following an overnight sell-off in U.S. Treasuries. Swaps markets now price about a 40% chance of a 25 bps rate hike by Australia's central bank in August, up from 10% before the inflation surprise.
For the first time since February, Australian 10-year government bond yields have surpassed U.S. 10-year yields. Despite broad U.S. dollar gains, the Australian dollar remained steady. Australia's inflation surprise came after a similar unexpected jump in Canadian inflation, increasing market anxiety ahead of the Federal Reserve's preferred U.S. inflation measure reading on Friday.
Later on Thursday, key economic data including U.S. GDP, European confidence figures, a speech from Australia's deputy central bank governor, and a rates decision in Sweden will be closely watched ahead of the first U.S. Presidential debate.
In foreign exchange markets, U.S. yields supported the dollar, which touched a two-month high of 106.13 against a basket of currencies on Wednesday. The dollar index is up 1.3% for the month and nearly 1.5% for the quarter, with expectations for U.S. rate cuts pushed back due to persistent inflation and strong economic data.
Benchmark 10-year U.S. Treasury yields rose 8 bps overnight and another 3 bps in Tokyo to 4.343%, marking a 15 bps rise for the quarter so far. The New Zealand dollar dipped further by 0.1% to a six-week low of $0.6069 on Thursday, while sterling reached a six-week low of $1.2613.
The yen, which slumped to a lifetime low of 171.79 per euro on Wednesday, was fragile at 171.57 in Asia and at 160.7 per dollar, weaker than levels that previously prompted Japanese intervention. Finance Minister Shunichi Suzuki expressed concern about the yen's impact on the economy, reiterating close monitoring of the currency market. The yen, down 12% against the dollar this year, is the worst-performing G10 currency, putting pressure on the Bank of Japan to raise interest rates from near zero.
In commodity markets, Brent crude futures fell 0.4% to $84.92 a barrel, down 3% for the quarter. Gold slipped as yields rose, trading at $2,297 an ounce. Wheat futures hovered near two-month lows due to signs of a good U.S. harvest and improving weather in Russia.
(By Commoditiescontrol Bureau: 09820130172)
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