Asian stocks slumped following Wall Street lower as investors contemplate a protracted period of higher interest rates. The dollar held onto gains from its recent rally.

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Benchmarks across the region declined, with stocks in Japan, Australia and South Korea all falling. The S&P 500 and Nasdaq 100 indexes both slumped 1.5 percent onTuesday as Wall Street’s fear gauge — the Cboe Volatility Index or VIX — hit the highest since late May after US consumer confidence fell to a four-month low. Contracts for US equities edged higher in early Asian trading.

The MSCI All Country World Index, one of the broadest measures of global equities, edged lower for a ninth day, heading for its longest losing streak in more than a decade. The slump has pushed the gauge to its 200-day moving average, a key level of support just as indicators suggest momentum in the selloff is stretched.

Yields on Treasuries remain near decade highs after a $48 billion Treasury auction of two-year notes was awarded at 5.085 percent, the highest since 2006. The Bloomberg dollar index steadied after setting a fresh 2023 peak in its strongest close since early December. The yen remains near 149 per dollar, keeping traders on edge for any step up in language from Japanese officials to gauge whether intervention to support the yen is on the horizon.

With the bond market guiding the direction for stocks and currencies, investors are pondering whether 10-year Treasury yields will extend gains, said Tony Sycamore, an analyst at IG in Sydney. If current levels break, “then there is little in the way of upside resistance until the 4.90 percent/5.00 percent region, which would likely unleash a violent response in equity markets.”

Emphatic Fed

One Fed speaker after another in the past week has delivered emphatic messages that they will keep policy tighter for longer if the economy is stronger than expected. The Fed’s hikes have hit consumer sentiment which dropped to 103 from a revised 108.7 in August, missing the median estimate of 105.5 in a Bloomberg survey of economists.

Meanwhile, Senate Democratic and Republican leaders agreed Tuesday on a plan to keep the government open through mid-November and provide $6 billion in assistance to Ukraine. The plan to avert a shutdown on Oct. 1 still needs to overcome gridlock in the House.

Investors “seem to favor the cut-run manoeuvre this week,” said Stephen Innes, managing partner at SPI Asset Management. “Heightened investor anxiety due to the looming possibility of a partial US government shutdown is not helping matters.”

In Asia, traders will soon shift attention to Chinese industrial profits data due Wednesday for clues into the health of the world’s second largest economy after fresh turmoil in the property sector. Australian inflation data will also be parsed for clues to the direction of Reserve Bank of Australia rate policy.

In commodities, oil resumed its climb, moving back above $90 a barrel, as the effect of rapidly tightening supplies outweighed a weakening risk appetite in broader markets, while gold held around $1,900 an ounce.

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