Asian equities floored by US sell-off

Higher US yields send equities reeling

The rise in US bond yields overnight saw the tech-heavy S&P 500 and Nasdaq indices experience another tough day at the office. The S&P 500 fell by 1.30%, with the Nasdaq retreating by 2.70%. By contrast, the cyclical-heavy Dow Jones eased only 0.38%, hinting that cyclical rotation is in play. In Asia, US index futures are in full retreat, with the Nasdaq down 0.90%, the S&P 500 minis down 0.80%, while Dow Jones futures outperform comparatively, lower by only 0.35%.

A similar story is playing out in Asian markets. North Asian markets, the prime beneficiaries of the recovery from the March 2020 lows, are being heavily sold. The Nikkei 225 has fallen by a whopping 2.45%, with the Kospi down 1.40%. The Shanghai Composite and CSI 300 have plummeted by nearly 3.0%, with Hong Kong down 2.75% and Taipei 1.90% lower.

By contrast, the more cyclical-heavy ASEAN markets are weathering the storm comparatively, in line with the rotation flows seen on Wall Street overnight. Singapore has, in fact, risen by 0.25%, while Kuala Lumpur is down just 0.35%, with Jakarta and Bangkok falling around 0.70%, with Manila 0.50% lower.

The bank and resource-heavy Australian markets have a much higher beta to Wall Street, reflecting their performance today, despite excellent Australian Balance of Trade data. That beta also extends to their bond market, where yields have spiked in sympathy with US Treasuries, and that has been the greater weight on sentiment. The ASX 200 is 1.40% lower, with the All Ordinaries falling by 1.25%. The RBA Head of Economic Research is speaking at the moment. He has just mentioned that the RBA monitors the RBNZ macro-prudential housing lending rules and their effectiveness closely. That is likely to increase the gloom down under; Australians love their houses.

From a technical perspective, two charts concerning me are the S&P 500 and Nasdaq. The Nasdaq broke through an ascending long-term support line, extending back to March 2020, at the start of last week. Since breaking 13,100.00, the index has tried multiple times to recapture it without success. It is now testing its 100-day moving average at 12.615.00. A daily close below 12,600.00 is an ominous bearish signal.

The S&P 500 has broken through support at 3800.00, an ascending line dating back to the March 2020 lows. This evening, a daily close below this level will signal further losses, initially targeting its 100-DMA at 3,693.00, followed by 3,600.00.

The price action on equity markets is ominous. Everything rests on Mr Powell’s remarks this evening in the short-term. An outsized increase by US Non-Farm Payrolls tomorrow night, though, will almost certainly lead to another spike in US bond yields in the current environment. I will stick my head out and say that equity markets worldwide are on the cusp of a material correction lower.

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