Asian stocks, bonds to slide as Wall Street gears up for Trump-Xi summit

Asian stocks and bonds are expected to decline on Thursday (Sep 24) as Wall Street experiences losses, amid concerns over inflation and the possibility of further interest rate hikes. The yen, nearing a three-week low, will be closely watched as Japanese markets reopen. New Zealand government bonds and Australian bond futures suffered early losses, mirroring the sell-off in Treasuries.

Equity-index futures for Hong Kong and Australia also pointed downward, while US equity futures remained stable after the S&P 500 and Nasdaq 100 declined on Wednesday.

US oil surged after Brent crude increased by 3.9 percent, reaching $103.08 a barrel. On Wednesday, 10-year Treasury yields jumped by 15 basis points to 5.11 percent, marking the largest one-day increase since the market turmoil caused by President Donald Trump's April 2025 tariff rollout. The sell-off intensified following a weak $70 billion sale of five-year notes, pushing yields above 5 percent for the first time since 2007. The US dollar strengthened against all major currencies.

Fears of higher energy costs colliding with a resilient US economy could continue to exert downward pressure on bonds and equities as investors evaluate how aggressively the Federal Reserve may need to tighten policy. Speculation of additional rate hikes has heightened, with traders focusing on upcoming inflation and labor market data.

Tony Miano of Wells Fargo Investment Institute stated, "The market is signaling the onset of a genuine re-tightening cycle." Higher discount rates for equities, increased borrowing costs for mortgages and corporations, and heightened expectations for risk assets are anticipated.

The economic data, alongside a surge in oil prices during the Middle East conflict, further fueled investors' expectations of additional Federal Reserve tightening. The Federal Reserve raised borrowing costs last week for the first time in three years, to a range of 3.75 to 4 percent, a decision that Chairman Kevin Warsh said eliminated a "dose of accommodation."

This move has positioned the central bank's target rate between 4.75 and 5 percent, assuming three quarter-point hikes over the next year. SEI Investments' Sean Simko warned, "You do not want to step in front of the freight train today," as the market faces the convergence of stronger economic data, rising energy costs, and concerns about persistent inflation.