TOKYO, Nov 25 (Reuters) – US long-term Treasury yields fell to more than seven-week lows on Friday, while the dollar fell near recent lows against other major currencies as markets continued to digest dovish signals from the Federal Reserve .
Expectations of less aggressive US monetary tightening as early as next month continued to support some equity markets in Asia, but Hong Kong’s Hang Seng fell sharply as record COVID-19 infections in China clouded the outlook.
The 10-year Treasury yield fell to 3.659% after the US Thanksgiving on Thursday, the lowest since Oct. 5 in Tokyo trading. The two-year yield slipped to a weekly low of 4.44%.
The dollar index, which measures the greenback against the euro, the yen and four other rivals, was hovering not far from Thursday’s low of 105.62 and last traded at 105.86.
A “substantial majority” of Fed policymakers had agreed that it would “probably soon be appropriate” to slow the pace of rate hikes, minutes from its last meeting on Wednesday showed.
Futures markets show that investors now expect US rates to rise just over 5% around May and are pricing in a roughly two-thirds chance of the Fed on Dec. 14 of a series of hikes down 75 basis points to half a point.
“After seeing how the market has reacted – stocks rallying, bond yields falling and the dollar weakening – if I were the Fed I’d think I’d better say something really hawkish now because otherwise the last 75 basis points of tightening I’m going to do.” are basically pointless, and the next 50 is just swallowed up by the market saying, ‘Don’t worry, the pivot is coming,'” said ING economist Rob Carnell.
“They want your rate hikes to mean something, so I think once everyone’s digested their turkey and got back to work — probably early next week — we’re going to be hearing some pretty aggressive stuff from the Fed.”
The US S&P 500 E-mini futures posted 0.2% higher for Wall Street’s restart of trading on Friday.
Equity markets in Asia-Pacific were mixed, with the Australian benchmark (.AXJO) up 0.35%, but a tech-driven sell-off in Hong Kong stocks weighed on sentiment elsewhere in the region.
The Hang Seng (.HSI) fell 0.93%, while the technology sector (.HSTECH) fell 2.22%.
Japan’s Nikkei (.N225) fell 0.34% and South Korea’s Kospi (.KS11) lost 0.31%.
China on Thursday reported record-high COVID infections, with cities across the country imposing localized lockdowns, mass testing and other restrictions, erasing recent optimism about the world’s second-largest economy moving from a strict zero-COVID policy to living with the disease.
“Investors are right to be concerned,” said ING’s Carnell. “They still don’t have the adequate healthcare network in China to deal with a widespread outbreak that is making many people sick.”
However, mainland China blue chips (.CSI300) rose 0.51%, helped by government measures to support the housing market. An index of real estate developer stocks (.CSI000952) rose 5.33%.
Oil edged up, paring some of this week’s losses, which were driven by concerns over Chinese demand and expectations that a high price cap planned by the Group of Seven nations for Russian oil will allow supply to flow.
Brent crude futures were up 13 cents, or 0.2%, to $85.47 a barrel.
U.S. West Texas Intermediate (WTI) crude futures rose 35 cents, or 0.5%, from just under $78.32 a barrel on Wednesday. There was no WTI settlement on Thursday due to the US holiday.
Both contracts are heading for their third straight weekly decline, on track to fall about 2%.
Gold rose 0.2% to $1,758.44 an ounce amid dollar weakness.
Reporting by Kevin Buckland; Adaptation by William Mallard
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