Shares in Asia headed for a sixth daily decline Friday against the backdrop of worries about China and higher interest rates.

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A gauge of the region’s equities opened lower, weighed down by shares in Japan and Australia. Hong Kong equity futures also declined, echoing a Thursday drop on Wall Street.

China remained firmly in focus. State-owned property developers warned of widespread losses, fueling concerns that the housing crisis is expanding from the private sector to companies with government backing.

Traders also girded for strong People’s Bank of China support for the weakening yuan, following news Chinese authorities had told state-owned banks to step up support for the currency.

The offshore yuan was little changed in early Asia trading. The Bloomberg dollar index was flat after weakening marginally Thursday. The yen was marginally stronger after Japan’s consumer inflation slowed, offering support for the Bank of Japan’s stimulative policy stance.

Treasury yields were broadly steady after rising again Thursday to within a few basis points of their 2022 highs.

This week’s shift down follows the publication Wednesday of minutes from the last Federal Reserve meeting that suggested officials are considering tighter policy, slamming hopes that the central bank was done raising rates.

Global government bond yields reached 15-year highs on the back of resilient economic data, though Australia’s benchmark yields ticked lower on Friday.

US futures were broadly flat after the Nasdaq 100 notched its worst three-day slide since February. The S&P 500 fell 0.8 percent, also its third daily decline.

The slump in stocks comes as investors must decide whether to roll over about $2.2 trillion of longer-dated options contracts tied to stocks and indexes that are scheduled to mature on Friday. That has led Goldman Sachs Group Inc. to warn that the activity is fueling the recent market selloff.

Tom Garretson, a senior portfolio strategist with RBC Wealth Management, said so far the stock slump has been more muted than during similar eras of elevated real rates.

“Tech stocks — and certainly equities broadly — are feeling the weight of rising real yields, but thus far not to the extent that we have seen during past episodes of rising yields,” Garretson said in an interview. “During past periods over the last three years of similar rises in real yields, we have seen tech pull back by about 7 percent to 15 percent.”

Data from before the US market opened showed the labor market remains healthy, doing little to change the narrative that more tightening from Fed officials may be in store.

“This week’s data hasn’t given them any reason to let their guard down,” said Mike Loewengart at Morgan Stanley Global Investment Office. “With housing starts, retail sales, and jobless claims all reinforcing the picture of a robust economy, another rate hike can’t be ruled out, even if the Fed remains on hold next month.”

Wall Street’s fear gauge, the Cboe Volatility Index or VIX, closed at 17.89, its highest level since May. The VIX hasn’t reached above 30 — a level considered a sign of heightened volatility — since a series of bank failures rocked the market in March.

Investors will soon be turning to next week’s gathering of policymakers at Jackson Hole in Wyoming to gauge Fed sentiment.

Bitcoin was hit by the risk-off mood, extending this week’s decline early on Friday. Crude was set to notch its first weekly drop — ending a run of seven advances — as traders weighed signs of tightening supplies against concerns about the Chinese economy and US monetary policy.

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First Published:Aug 18, 2023 6:36 AM IST