Rapid Pace of Interest Rate Increases, Not Level is Rattling Investors

The major Asia equity markets are in negative territory on Friday, following Wall Street’s lead, as investors adjust their portfolios to the prospect of higher interest rates and ahead of the U.S. Non-Farm Payrolls report that could signal even higher rates to follow.

Traders aren’t too concerned about the level of interest rates, but rather the pace they are moving. The price action in the markets is similar to the movement in late January and early February when volatility spiked in U.S. equity markets.

In other news, shares of Apple suppliers fell on the back of a report by Bloomberg BusinessWeek claiming that Chinese spy chips may have been present in hardware used by Amazon Web Services and Apple.

U.S. Equity Markets

The sudden rise in U.S. Treasury yields drove all three major U.S. stock indexes sharply lower on Thursday with the tech-based NASDAQ Composite posting its biggest daily drop since June 25.

The benchmark S&P 500 Index tumbled 0.82 percent with the selling led by weakness in the communications and tech sectors. The blue chip Dow Jones Industrial Average dropped 0.75%. The weakness was led by Nike and Home Depot. The tech-driven NASDAQ Composite fell 1.8 percent, led by more than 2 percent drops in Facebook, Netflix and Alphabet.

Overall, dividend-paying stocks sensitive to higher rates fell broadly, while bank stocks which benefit from higher rates rose.

U.S. Treasury Markets

U.S. Treasury yields jumped higher Thursday, hitting multiyear highs on the back of robust U.S. economic data and expectations of additional rate hikes. The yield on the benchmark 10-year Treasury note hit its highest level since May 2011 early Thursday at 3.232 percent.

The 10-year settled at 3.187 percent, while the yield on the 30-year Treasury bond, which broke a new 2014 high Thursday, was up at 3.346 percent.

U.S. Economic Data

The news continued to be rosy for the U.S. economy on Thursday with the release of the weekly unemployment rate data. The Labor Department said that the number of Americans filing for unemployment benefits fell to a near 49-year low last week, with initial claims slipping to a seasonally adjusted 207,000.

Challenger Job Cuts rose 70.9% from 13.7%. This wasn’t actually good news since it represents the change in the number of job cuts announced by employers. The headline number was 55,285, up from 38,472 in August. Nearly half (47.9 percent) of September job cuts came from Wells Fargo’s announcement that it will cut between 5 and 10 percent of its workforce of 265,000 workers over the next three years.

Factory good orders surged 2.3 percent, the largest increase since September 2017, the Commerce Department said on Thursday. Data for July was revised up to show factory orders falling 0.5 percent instead of the previously reported 0.8 percent drop. Economists were looking for a 2.1 percent increase in August.

Finally, Federal Reserve Vice Chair Randal Quarles said on Thursday the world’s central banks, including the Fed, risked “quite bad” outcomes if they themselves be influenced by political considerations.