Asian shares declined on Thursday as U.S. stocks experienced losses due to higher yields in the bond market. The Dow Jones Industrial Average dropped by over 400 points, contributing to the downward trend. The Nikkei 225 in Tokyo fell by 1.3% to 38,054.13, while the Hang Seng in Hong Kong declined by 1.4% to 18,217.83. The Shanghai Composite index initially saw gains but ultimately lost 0.6% to 3,091.68. Australia’s S&P/ASX 200 slipped by 0.5% to 7,628.20, and the Kospi in Seoul sank by 1.6% to 2,635.44. Taiwan’s Taiex experienced a 1.4% decline, and India’s Sensex was 0.5% lower.
Mizuho Bank provided commentary on the situation, stating that global inflation, which has been higher and more persistent than expected, is impacting asset markets. This unexpected development is causing concerns about the adverse effects of higher interest rates on demand.
The S&P 500 experienced a 0.7% decline on Wednesday, reaching 5,266.95. This decrease has impacted its overall performance for the month of May, which had previously been on track to be its strongest month since November. Approximately 80% of stocks within the index saw a drop in value.
Additionally, the Dow industrials experienced a 1.1% loss, closing at 38,441.54. The Nasdaq composite, despite reaching a new all-time high, slipped by 0.6% to 16,920.58.
Airline stocks, particularly American Airlines Group, faced a significant slump after revising their profit and financial targets for the spring. While the carrier anticipates lower fuel costs, they also expect a decline in an important revenue trend. As a result, American Airlines Group’s shares fell by 13.5%.
ConocoPhillips also experienced a decline of 3.1% following their announcement to acquire Marathon Oil in an all-stock deal. This deal values Marathon Oil at $22.5 billion, including $5.4 billion of net debt. This acquisition adds to the recent surge of buyout announcements within the industry. Marathon Oil, on the other hand, saw an increase of 8.4% in its stock price.
Advance Auto Parts saw a decline of 11% as its latest quarter’s results and revenue fell slightly short of analysts’ expectations.
The stock market was also weighed down by an increase in longer-term Treasury yields, with the 10-year yield rising to 4.61% from 4.54% following the auction of $44 billion in seven-year Treasuries.
Although the 10-year yield is still lower for the month, it has been gradually rising since dropping below 4.40% in mid-May. This increase in Treasury yields negatively affects the prices of various investments.
The recent fluctuations in yields coincide with traders reassessing their expectations for when the Federal Reserve might start cutting its main interest rate, which is currently at its highest level in over 20 years.
Due to persistent inflation, traders have had to repeatedly postpone their overly optimistic predictions for rate cuts throughout the year.
The Federal Reserve is currently navigating a delicate balancing act. On one hand, they are raising interest rates to curb inflation, but on the other hand, they are cautious not to trigger widespread layoffs by tightening monetary policy too aggressively.
According to a recent report from the Fed, businesses across the country have been receiving feedback from consumers who are resistant to further price increases. This resistance is impacting companies’ profits as their expenses, such as insurance costs, continue to rise.
Despite concerns about a potential slowdown in consumer spending, especially among lower-income individuals, economists at BNP Paribas remain optimistic about the overall health of the job market. They also anticipate that inflation will be contained and note the potential for gains in the cryptocurrency market, which could provide additional support to the economy.
Despite concerns about high interest rates, U.S. stocks have continued to reach new records, largely driven by the rising value of stocks related to artificial intelligence technology. Nvidia’s impressive profit report further fueled this market frenzy. Although there was a brief dip in morning trading, Nvidia’s stock rose by 0.8% on Thursday, marking a more moderate gain since the release of its profit report.
In other market news, the U.S. benchmark crude oil saw a decrease of 29 cents, trading at $78.94 per barrel on the New York Mercantile Exchange. Meanwhile, the international standard Brent crude declined by 35 cents, reaching $83.08 per barrel.
Currency exchange rates also saw some fluctuations, with the U.S. dollar slipping to 156.61 Japanese yen from 157.65 yen. Additionally, the euro fell slightly to $1.0797 from $1.0803.