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Asian shares tracked futures that traded lower Friday amid U.S. Federal Reserve Chair Jerome Powell's remarks about the inflation outlook and pressure on Wall Street from the prospect of a 5 percent yield on the 10-year U.S. Treasury for the first after 2007.
Addressing the Economic Club of New York Luncheon Thursday, Powell said that inflation remains too high and the path toward sustainable reduction is uncertain despite a recent notable improvement in the inflation trajectory. After reaching a peak of 7.1 percent in June 2022, the 12-month headline Personal Consumption Expenditure (PCE) inflation has fallen to an estimated 3.5 percent through September. Core PCE inflation, which excludes volatile food and energy components, is also on a downward trajectory, estimated at 3.7 percent through September.
Oil prices, however, rose after the Department of Energy floated two offers to purchase crude for the nation's Strategic Petroleum Reserve (SPR) on Thursday. The Biden administration has been taking action to bolster the reserves for the first time after July, a report of the Associated Press said.
The U.S. action comes amid increasing crude buoyancy from the escalating conflict in the Middle East, “which is definitely bad news for inflation,” the report said quoting Fatih Birol, executive director of the Paris-based International Energy Agency (IEA). He told the news agency that developing countries that import oil and other fuels would be the most affected by higher prices.
The AP report adds:
Tokyo’s Nikkei 225 index lost 0.3% to 31,338.51 after the government reported that consumer inflation was higher than expected in September. The core inflation rate, which excludes volatile fresh food prices, rose 2.8% from a year earlier in September.
It was the first time in 13 months that core CPI inflation has fallen below 3%. But when excluding both fresh food and fuel prices, inflation was 4.2%, still close to the 40-year peak of 4.3% recorded earlier this year.
China announced on Friday it was keeping its benchmark lending rates unchanged, with the one-year loan prime rate unchanged at 3.45% and the five-year LPR at 4.20%, in line with market expectations.
Hong Kong’s Hang Seng shed 0.7% to 17,177.38 and the Shanghai Composite index dropped 0.8% to 2,980.55.
The Kospi in Seoul lost 1.4% to 2,380.92. Australia’s S&P/ASX 200 sank 1.2% to 6900.70. India’s Sensex was 0.2% lower and Bangkok’s SET fell 1.3%.
On Thursday, the S&P 500 fell 0.8%, to 4,278.00, following a mixed set of profit reports from Tesla and other influential companies. The Dow Jones Industrial Average dropped 0.7% to 33,414.17 and the Nasdaq composite sank 1% to 13,186.18.
As the reference point for much of the financial world, the 10-year yield helps set prices for all kinds of investments and loans.
Rapidly rising bond yields have been squeezing Wall Street since the summer. The yield on the 10-year Treasury touched 4.99%, up from 4.91% late Wednesday, before paring its gain to 4.98%. Early Friday, the 10-year Treasury yield was 4.94%.
Fed Chair Jerome Powell said in a speech Thursday that the Fed could raise interest rates again if U.S. economic growth appears persistently strong. The Fed has raised rates to their highest level since 2001 hoping to curb price pressures by getting businesses and consumers to spend less. A higher 10-year yield makes mortgages more expensive, knocks down prices for investments and makes it costlier for companies to borrow and grow.
A separate report, though, said manufacturing in the mid-Atlantic region is weakening by more than economists expected. And a third said sales of previously occupied homes fell last month, though not by as much as economists expected.
High yields hurt all kinds of stocks, but especially those bought on expectations for big growth far into the future. That’s often put the spotlight on Big Tech recently.
Tesla fell 9.3% after it reported weaker results for the summer than analysts expected. It’s been cutting prices to drive sales, but that also eats into its profitability.
On the opposite end was Netflix, which jumped 16.1%. It reported stronger profit for the latest quarter than analysts expected, and it said it would raise prices on some of its membership levels to drive more revenue.
Overall, analysts expect companies across the S&P 500 index to report slight growth in their earnings per share for the summer versus a year earlier. If they do, it would be the first such growth in a year.
A barrel of benchmark U.S. crude rose 68 cents to $89.05 per barrel in electronic trading on the New York Mercantile Exchange. It increased $1.05 to settle at $89.37 on Thursday. Brent crude, the international standard, was up 54 cents at $92.02 per barrel.
In currency trading, the U.S. dollar rose slightly to 149.92 Japanese yen from 149.78 yen. The euro cost $1.0575, little changed from $1.0579.