Market sentiment has turned cautious, with US Treasury yields holding at elevated levels as global markets largely remained on the sidelines ahead of Federal Reserve Chair Powell's speech at Jackson Hole.
On Friday, the Korea Composite Stock Price Index closed 1.79% lower. Nasdaq 100 futures fell 0.2%, with Marvell Technology dropping over 7% in after-hours trading, weighing on sentiment. Japan's two-year government bond auction saw a bid-to-cover ratio of 2.97, well below the 12-month average of 3.74, while the tail gap widened to 0.034, the widest since 2016, signaling growing market expectations for further Bank of Japan policy tightening.
Global investor focus is squarely on the upcoming remarks from the Fed Chair. US Treasury yields maintained Thursday's gains, with the two-year yield holding steady at 4.23%, as concerns over persistent inflation and the US fiscal outlook keep markets wary of longer-duration rates. US equity futures edged lower, with the AI-driven trading enthusiasm sparked by Nvidia's earnings beginning to fade.
Elias Haddad of Brown Brothers Harriman & Co. believes clear policy signals may not materialize, given Chair Powell's usual reluctance to provide forward guidance. He anticipates Powell may instead preview initial findings from the Fed's five working groups covering communications, balance sheet, economic data, productivity and employment, and inflation framework.
European markets opened mixed: Germany's DAX rose 0.31%, the UK's FTSE 100 fell 0.79%, France's CAC 40 dropped 1.68%, and the Euro Stoxx 50 declined 0.71%.
Japan's Nikkei 225 closed up 0.4% at 66,405.56, while the Topix index gained 0.7% to 4,146.71. Seoul's KOSPI finished 1.79% lower at 6,788.89. The yen hovered around 159.40 per dollar. Japan's 30-year government bond yield rose 5 basis points to 4.11%. The US 10-year Treasury yield was little changed at 4.68%. Gold slipped slightly to around $4,580 per ounce. Brent crude fell 0.5% to approximately $89.30 a barrel. Bitcoin dropped to just below $80,000.
Weak Demand at Japan Bond Auction as Market Digests Rate Hike Expectations
Friday's auction of Japanese two-year bonds showed notably weaker demand. The bid-to-cover ratio fell sharply to 2.97 from the 12-month average of 3.74, while the tail gap widened dramatically to 0.034 from the previous 0.007 — its widest since 2016. A wider tail typically indicates investors demanding higher yield premiums during the auction, reflecting insufficient demand.
According to Bloomberg, Tokyo's core inflation gauge accelerated for a third consecutive month, with the yen hovering near 159.40 per dollar. Expectations for further Bank of Japan policy tightening continue to build, prompting investors to reduce interest in short-dated JGBs. Additionally, Japan's Ministry of Finance is due to release monthly FX intervention data on Friday, drawing close market attention.
Japan's long-end bond market also faced pressure, with the 30-year yield climbing 5 basis points to 4.11%, further evidence of the spreading upward pressure on global long-term rates.
Chair Powell's Speech Becomes Key Variable as Yields Hold High
The US Treasury market sustained Thursday's decline, with yields across maturities rising 2-3 basis points that day, as inflation worries and fiscal outlook concerns continued to pressure bond sentiment. Markets await Chair Powell's address at the Jackson Hole symposium in Wyoming, with some investors expecting a hawkish signal.
Torsten Slok, chief economist at Apollo Global Management, told Bloomberg Television, "The risk is that if he doesn't provide any framework guidance, long-term rates could see a significant upward move."
Dhiraj Narula, US rates strategist at HSBC, wrote that "Chair Powell's Jackson Hole speech is an opportunity to stem the persistent selling in long-end Treasuries; clarifying the Fed's inflation reaction function could help compress the term premium associated with uncertainty."
However, Haddad at Brown Brothers Harriman sees it differently, noting Powell's historical reluctance to offer forward guidance means explicit policy signals may not emerge. He expects Powell may instead outline initial findings from the five Fed working groups on communications, balance sheet, economic data, productivity and employment, and inflation framework.
The Federal Reserve held the federal funds rate steady at 3.5%-3.75% at its latest meeting, with futures pricing suggesting one more 25 basis point hike within the year. Kansas City Fed President Jeff Schmid indicated current monetary policy is not constraining the economy.
AI Trading Enthusiasm Cools as Sentiment Turns Cautious
Following Nvidia's optimistic earnings outlook, US tech stocks rallied broadly Thursday, lifting major indices, though other market sectors declined. By Friday, this boost had visibly weakened.
Nasdaq 100 futures slipped 0.2%, and Marvell Technology's more than 7% drop in after-hours trading dampened sentiment. The KOSPI index — viewed as a barometer for AI investment — lost 1.3%.
Frederic Neumann, chief Asia economist at HSBC, remarked, "The tailwind from Nvidia's earnings could dissipate quickly within trading sessions, as investors brace for the impact of Chair Powell's speech."
Analysts note that while accelerated AI investment fosters industry growth, it may also fuel inflation and put upward pressure on bond yields — a contradiction likely to keep volatility elevated for tech stocks.
Other Markets: Gold Edges Lower, Oil Under Pressure
Among other assets, gold slipped slightly to around $4,580 per ounce, while bitcoin fell to just below $80,000.
Brent crude declined 0.5% to approximately $89.30 a barrel, despite new obstacles emerging in diplomatic efforts surrounding the Strait of Hormuz. According to Bloomberg sources, Venezuela is closely studying plans to leave OPEC.
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