Long Bonds Drop on Fed Pause, Nasdaq Futures Gain: Markets Wrap

(Bloomberg) — Asian bonds tracked Treasuries lower as uncertainty over the Federal Reserve’s policy outlook pushed longer-dated US yields to their highest levels in almost two decades. US stock futures rose as a recent chip-led selloff showed signs of easing.

Thirty-year government bonds in Australia, New Zealand and South Korea came under pressure after longer-dated Treasury yields climbed when the Fed left interest rates unchanged for a seventh straight month. The 30-year Treasury yield rose three basis points on Thursday to 5.23%, a 19-year high, extending an 11-basis-point jump following the Fed’s decision. A gauge of the dollar edged lower for a fifth day.

Elsewhere, contracts for the Nasdaq 100 Index climbed 0.7% after the underlying gauge entered a technical correction on Wednesday. Helping sentiment, Microsoft Corp. gained almost 9% in extended trading after reporting its fastest cloud-computing growth in four years. Meta Platforms Inc., however, fell 7.5% in post market trading following a disappointing revenue forecast for the current year.

Asian shares fluctuated in a volatile session that saw South Korea’s Kospi Index swing between gains of as much as 5.5% and a loss of as much as 2.1%. A selloff in semiconductor stocks eased as Samsung Electronics Co. shares climbed 1.7% after chip profit soared 250-fold.

Investors have been whipsawed this week by three themes: a global selloff in semiconductor stocks amid concerns about returns on billions of dollars of AI spending, renewed fighting in the Middle East and uncertainty over the Fed’s inflation fight. The lack of updated policy guidance by the US central bank, coupled with a divided committee, left markets with little clarity on the path for rates.

“There is very little to hang your head on in the markets,” Torsten Slok, chief economist at Apollo Global Management, told Bloomberg Television. “It was also a little bit complicated to figure out what was the basis of the decision,” he said, adding that the Fed’s abandonment of guidance is fueling historic bond market volatility.

The bond market remained in the spotlight and attention now turns to the Bank of England’s policy decision due Thursday, followed by the Bank of Japan on Friday. UK 10-year bond futures declined for a second day, falling 41 ticks to 86.37, indicating losses in the cash market.

Fed Chair Kevin Warsh said the decision to leave rates unchanged wasn’t a sign of inertia at the central bank and that markets would be free to chart their own course based on economic signals. Three of the Fed’s 12 voting officials dissented in favor of a rate increase, highlighting persistent concerns about inflation.

The moves in long-dated bonds revealed investors are growing increasingly concerned that Warsh won’t manage to rein in inflation that has run above the Fed’s target for five straight years.

“Despite three committee dissents in favor of a July hike, Chair Warsh stopped short of flagging an imminent hike, echoing June’s tone,” said Fabien Yip, a market analyst at IG International in Sydney. “That is starting to unsettle investors: a Fed unwilling to commit to further tightening raises the question of whether it can keep long-term inflation expectations anchored.”

Meanwhile, West Texas Intermediate crude fell 1% to trade around $83.60 a barrel on Thursday even as the US launched a new wave of strikes against Iran.

Elsewhere, Japan’s two-year government bond auction Thursday saw lower demand than the 12-month average amid growing expectations of central bank tightening. Bond futures declined.

MSCI’s Asian stocks benchmark climbed 0.3%, with Japan’s Nikkei 225 Stock Average gaining over 1%. A regional gauge of chipmakers rose 0.5%.

“Microsoft’s solid earnings have provided a dose of relief and given the market fresh hope that the tech trade still has legs,” said Tim Waterer, chief market analyst at KCM Trade. “Sentiment appears to be stabilizing for now, though traders will be watching the rest of the mega-cap reports closely to see whether this rebound can gather real momentum.”

Corporate Highlights:

Qualcomm Inc., the largest maker of smartphone processors, gave a weak profit forecast for the current quarter, signaling that component shortages and rising costs are taking a toll on its main market. Arm Holdings Plc delivered a sales forecast that failed to impress investors, who have grown increasingly wary about chip-industry prospects in recent days. Starbucks Corp. raised its annual outlook after quarterly results surpassed market estimates, a sign that efforts to attract diners with speedier service and new products are paying off. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.3% as of 1 p.m. Tokyo time Japan’s Topix fell 0.5% Australia’s S&P/ASX 200 fell 0.8% Hong Kong’s Hang Seng was little changed The Shanghai Composite fell 1.1% Euro Stoxx 50 futures rose 0.2% Currencies

The Bloomberg Dollar Spot Index was little changed The euro fell 0.1% to $1.1450 The Japanese yen was little changed at 163.50 per dollar The offshore yuan was little changed at 6.7608 per dollar The Australian dollar was little changed at $0.6951 Cryptocurrencies

Bitcoin rose 1% to $64,063.62 Ether rose 1.3% to $1,907.32 Bonds

The yield on 10-year Treasuries advanced two basis points to 4.70% Japan’s 10-year yield advanced six basis points to 2.805% Australia’s 10-year yield advanced six basis points to 4.98% Commodities

West Texas Intermediate crude fell 0.9% to $83.68 a barrel Spot gold fell 0.2% to $4,058.79 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Alice French, Carmeli Argana, Elaine Lai and Masaki Kondo.

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