Bonds Sell Off as Traders Reprice Fed Rate Cuts: Markets Wrap

(Bloomberg) -- A selloff in Treasuries strengthened the dollar and left equities mixed as new signs of economic vigor led traders to trim expectations for US rate cuts.

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Shares in Australia and Hong Kong equity futures fell, while contracts for Japanese benchmarks advanced, helped along by a weaker yen. US futures were slightly higher after the S&P 500 retreated from an intraday record Thursday to end the session little changed.

Swaps traders further reduced bets on Federal Reserve rate cuts in the remaining two meetings of the year. A jump in Treasury yields on Thursday pushed an index of dollar strength higher for a fourth session to a level not seen since early August. Australian and New Zealand yields climbed in early Friday trading, tracking the moves.

The shift in forecasts reflected robust US retail sales in September that exceeded expectations, illustrating resilient consumer spending that continues to power the economy. The data followed a blowout jobs report and a hotter-than-estimated consumer inflation print released earlier this month that only reinforced the view the US is nowhere near a recession.

“There’s a narrow path toward a Fed pause in November, but it would likely require every notable economic report between now and then indicating a stronger-than-assumed US economy,” said Matthew Weller at Forex.com and City Index. “Regardless of what the Fed does in November though, the projected path for interest rates looking out into 2025 and beyond is higher than it’s been in weeks.”

In Asia, investors will firmly be focusing on China, with gross domestic product data for the third quarter expected to reveal the slowest pace of growth in six quarters. Home prices, industrial production and retail sales data are also set for release Friday, providing further clarity for investors grappling with the economic support measures unveiled in the prior weeks that have sent Chinese equities whipsawing.

Elsewhere in the region, headline inflation in Japan rose 2.5% as expected, leaving the yen little changed. The currency passed the psychological level of 150 per dollar Thursday, bringing the risk of official intervention back into focus.

In corporate news, US-listed shares in Taiwan Semiconductor Manufacturing Co. touched a record high after the chipmaker topped quarterly estimates and raised its target for 2024 revenue growth.