(Bloomberg) — The dollar rose and weighed on Asian stocks as risk appetite remained subdued given the prospect of less aggressive rate cuts from the Federal Reserve.
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The dollar strengthened against all Group of 10 currencies as 10-year Treasury yields extended gains after rising above 4.2% for the first time since July earlier this week. Following a global bond sell-off, yields on 40-year Japanese government bonds also rose to a 16-year high.
A benchmark for Asian shares lost 0.2%, amid declines in Japan and modest gains in South Korea. US futures traded lower. Hong Kong and mainland Chinese stocks were outliers, rising after a leading government-linked think tank called on authorities to issue 2 trillion yuan ($281 billion) in special government bonds to help set up a market stabilization fund.
The broader lackluster performance in stocks comes as investors have scaled back bets on rapid policy easing, on signs that the U.S. economy remains robust and on concerns about broader budget deficits after the presidential election. Most Fed officials who spoke earlier this week indicated they favor a slower pace of rate cuts.
“Asia is largely in the background,” said Vishnu Varathan, head of Asia economics and strategy at Mizuho Bank. “The USD dominates against the backdrop of Fed statements suggesting more gradual cuts, IMF revisions indicating relative US exceptionalism is holding, and the absence of follow-on bulls in China.”
Bank of America Corp. CEO Brian Moynihan was among the latest to join the monetary policy debate, urging Fed policymakers to be measured by the size of rate cuts.
The International Monetary Fund cut its global growth forecast for next year and warned of the rising risks of trade protectionism wars, even as it credited central banks with curbing inflation without sending countries into recession.
Back in Asia, two stock listings were in the spotlight. The shares of Tokyo Metro Co. rose as much as 47% in their debut after the company raised 348.6 billion yen ($2.3 billion) in the country’s largest initial public offering since mobile carrier SoftBank Corp. listed. in 2018. In Hong Kong, China Resources Beverage Holdings Co. won 14%, a strong response to one of the city’s largest IPOs this year.
