Asian stocks dip, bonds in focus after torrid September

Asian stock markets were subdued on Thursday as global bond markets remained pressured following a lackluster September, according to Reuters. Investors were concerned about the slower-than-anticipated rise in US inflation in August, which reduced the likelihood of an interest rate hike later in the month. Micron Technology's strong earnings from AI chip production did not lift the subdued mood, while ongoing negotiations between the US and Iran to end the seven-month-long conflict kept oil prices elevated.

MSCI's Asia-Pacific index outside Japan fell 0.2%, with South Korea's KOSPI down 0.14%. Japan's Nikkei, however, rose over 1% due to increased demand for chip-related stocks. Global stock futures were up 0.3%. European stock futures declined by 0.75% in early trading. Charu Chanana, a chief investment strategist at Saxo, noted that while Micron's figures validated the demand for AI and memory, investors were increasingly questioning if the memory shortage was nearing its peak, despite continuous demand exceeding supply.

Macro conditions were also becoming more varied. US data became softer, easing pressure on Federal Reserve expectations and short-term yields, but long-term yields remained high, keeping concerns about the cost of capital. Benchmark US 10-year Treasury notes surged to a 5.306% yield, the highest since mid-June 2007, while the 30-year yield reached 5.634%, its highest since June 2002.

Market focus was on how long US Treasury yields would stay above the psychologically significant 5% level. The US debt has surpassed $40 trillion, and the fiscal situation shows no signs of improvement. Darren Shames, global head of rates sales at Nomura, pointed out that the trajectory of the rate hike, rather than the 5% level itself, was capturing investors' attention.

US inflation increased less than expected in August, with price pressures more moderate in the prior month than previously reported. This led traders to adjust their expectations of a Federal Reserve rate hike on October 28, with the chance of a rate increase now at 38%, down from 50% a day earlier. The Federal Reserve raised rates in September for the first time in three years, but comments from New York Fed President John Williams suggested no urgency for further action.

The US dollar remained steady near a two-month high, while the euro and Japanese yen showed more modest movements. Oil prices were mostly flat, as investors evaluated the outcome of US-Iran peace talks and the outlook for Middle East crude exports, with Brent crude futures at $98.15 a barrel, up 14% from the previous month.