Fear of rising interest rates sinks markets

Markets Trending Downward Due to Negative Sentiment on Expected Interest Rate Cuts

Today, markets are deep in the red, driven down by a general negative sentiment on the expected decrease in interest rates.
Japan and South Korea have borne the brunt of the losses in the region, dragging the MSCI Asia Pacific index to a three-week low.
Even U.S.
stock futures contracts are trading in the red.
The index of Chinese tech stocks in Hong Kong is nearing a technical correction.

Treasury Yields Stabilize Amid Concerns Over U.S.
Deficit Funding

Treasury yields have stabilized in Asian trading after falling across the curve in the previous session following weak demand in a $44 billion seven-year note auction.
This outcome has raised concerns that U.S.
deficit funding could push yields higher at a time when the Federal Reserve is in no rush to cut rates.

Global bets are now leaning towards higher borrowing costs in the long run, as investors look to key U.S.
inflation data at the end of the week for further clues on the future path of Fed monetary policy.

Inflation and Rising Rates: Pessimistic Markets

The halt in the global stock market rally comes on the back of data indicating persistent inflationary pressures in major economies.
“A global inflation hotter and stickier than anticipated seems to be taking the wind out of financial markets,” said Vishnu Varathan, Chief Economist for Asia ex-Japan at Mizuho Bank.

The broader MSCI index of Asia-Pacific ex-Japan stocks dropped by 1.2%, following Wall Street’s lead and extending the 1.6% decline from the previous session.

Focus on Downside Risks Amid Higher Yields

“The market has fallen under the spell of the bond market wizard and higher yields,” said Tony Sycamore, market analyst at IG Australia Pty Ltd.
“Attention has shifted to managing downside risks in case we see stronger-than-expected inflation data in the U.S.
or Europe,” he added.

A Fed survey on Wednesday showed that U.S.
economic activity continued to expand from early April through mid-May, but companies have grown more pessimistic about the future as inflation has increased at a modest pace.

Across the Atlantic, data from the same day showed that German inflation rose slightly more than expected to 2.8% in May, ahead of the broader Eurozone figure on Friday.

Focus on PCE Price Index Report

The highlight of the week for markets, however, is Friday’s Personal Consumption Expenditures (PCE) Price Index report, the inflation measure favored by the Federal Reserve.
Expectations are for it to remain stable on a monthly basis.

“Looking at the data that has brought us to this point, I struggle to believe that we will see a weaker-than-expected PCE report on Friday,” said Matt Simpson, senior market analyst at City Index.

Markets remain on edge, awaiting further developments with a sense of nervousness.