Aurelia Butler

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Another watershed day for U.S. Treasuries on Thursday – the entire curve came within a whisker of trading above 5% – is set to weigh heavily on Asian market sentiment on Friday and potentially seal one of the biggest weekly losses for regional stocks in months.The gloomy end to the week comes as investors also await inflation figures from Japan, Malaysia and Hong Kong; remarks from Bank of Japan governor Kazuo Ueda; and an interest rate decision from China.The People’s Bank of China is widely expected to leave its one- and five-year loan prime rates unchanged at 3.45% and 4.20%, respectively. But after Bank Indonesia’s shock rate hike on Thursday, traders won’t be taking anything for granted.But market sentiment and direction across Asia on Friday will be driven by the dramatic repricing of the U.S. bond market that shows no sign of cooling. If anything, it is heating up by the day.The U.S. 10-year yield has shot up 35 basis points this week, on track for its biggest weekly rise in over a decade. The 2s/10s yield curve has steepened 27 basis points, which would be the biggest weekly steepening move since March.There are plenty cross-currents flowing through markets right now – mixed U.S. earnings, war in the Middle East and spiking oil prices, and another debacle on Capitol Hill as U.S. lawmakers again failed to elect a House speaker.But the catalyst for Thursday’s volatility was remarks by Federal Reserve Chair Jerome Powell, who said signs of above-trend growth or a too-strong labor market could warrant more monetary tightening.Wall Street – which had earlier in the day traded higher on strong U.S. jobs data and Netflix (NASDAQ:NFLX) earnings – quickly flipped as bond yields leapt higher. The 10-year yield rose as high as 4.996%, a level not seen since July 2007.The MSCI Asia ex-Japan index is already down more than 2% so far this week. Given the extent of Wall Street’s slide on Thursday and potential event risk from the Middle East over the weekend, it is almost certain to end the week at a new low for the year.On the economic data front, data are expected to show Japan’s annual core inflation rate was 2.7% in September, cooling from 3.1% in August. That would be the lowest inflation since July last year.The BOJ will scrutinize the data at its next policy meeting on Oct. 30 to 31, when policymakers are expected to raise their inflation outlook, potentially signaling another step towards exiting years of ultra-easy monetary policy.Yen traders, with dollar/yen stuck up near 150.00, will be paying close attention too.Here are key developments that could provide more direction to markets on Friday:- China interest rate decision- Japan inflation (September)- BOJ governor Ueda speaks (By Jamie McGeever; Editing by Josie Kao) More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Beijing is weighing holding up US chipmaker Broadcom’s $69bn acquisition of cloud software company VMware — a move that would come soon after Washington toughened rules to block Chinese access to high-performance semiconductors.China’s State Administration of Market Regulation has not signed off on the blockbuster deal announced in May 2022 and is likely to delay approving the transaction, especially in the wake of Washington’s tougher chip controls unveiled on Tuesday, said three people familiar with the matter.Two of the people said China’s merger and acquisition approvals for US companies now required additional consultations with the Ministry of Foreign Affairs and the State Council.“Their involvement adds to the political nature of the process,” one of the people said. Shares in VMware closed around 9 per cent lower at $150.31 in New York on Thursday. Broadcom was down about 2 per cent. “On Friday last week, this was trading with a greater than 90 per cent probability of success and now it is trading like a coin flip,” said one large hedge fund investor. The State Administration of Market Regulation, the Ministry of Foreign Affairs and the State Council did not respond to requests for comment.Broadcom said in a statement there was no legal impediment to the deal closing in the US, while it had received regulatory approvals in nine jurisdictions and was making progress with filings around the world. The group said it expected the transaction to close in its fiscal year ending this month. VMware said: “We continue to expect the deal to close on October 30 2023.”South Korea’s Fair Trade Commission is one other regulator yet to approve the deal. An FTC spokesperson said a review was held on Wednesday, and a decision was likely to come next week.The need to go through China’s deal review process puts the semiconductor group in the middle of rising tensions between Washington and Beijing. Chinese state security officials raided the offices of US consultancies such as Bain & Company and Mintz Group this year. Authorities have also banned some purchases of chips from US semiconductor maker Micron Technology.If Broadcom’s merger with VMware is scuppered by Beijing, it would mark the second time in five years that the technology group has seen its dealmaking ambitions curtailed by US-China tensions.In 2018, then-US president Donald Trump blocked Broadcom’s $142bn bid for chipmaker Qualcomm, citing national security concerns about a US semiconductor champion being bought by what was then a Singapore-headquartered company.Broadcom subsequently relocated its headquarters to the US.Chinese officials have been closely scrutinising any transaction involving US chip groups. Semiconductor giant Intel in August called off its $5.4bn acquisition of Israeli chipmaker Tower Semiconductor, after failing to secure regulatory approval in China ahead of a self-imposed deadline for closing the transaction.“China’s antitrust regulator rarely formally blocks mergers, especially if other major jurisdictions have already approved it,” said a Chinese antitrust expert who asked not to be named.“If authorities do not want to approve a transaction, they prefer to extend the review process repeatedly until the parties lose patience and give up.”San Jose-based Broadcom has repeatedly declined to address whether its purchase of VMware would need the sign-off of antitrust authorities in China. However, deals between large multinationals in which the two participants generate revenue in China of more than Rmb400mn ($55mn) must be filed with the State Administration of Market Regulation for anti-monopoly approval.In Broadcom’s most recent financial year, about a third of the company’s $33bn in revenue came from shipments to China. VMware does not break out its China revenue, but executives have said its business in the country is “robust”.Additional reporting by Tim Bradshaw and Arash Massoudi in London and Nian Liu in Beijing More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Federal Reserve will proceed “carefully” with forthcoming monetary policy decisions, its chair said on Thursday, in the latest indication that the US central bank is preparing to hold interest rates steady at its meeting later this month.Jay Powell struck a cautious tone just days before the central bank’s scheduled “blackout” period ahead of a two-day meeting starting on October 31, after which public communications are limited. Powell pointed to a range of risks officials now must consider as they determine how much more to squeeze the world’s largest economy to tame inflation. But he also emphasised that the impact of the Fed’s rate-raising campaign of the past 18 months was not yet fully visible.“A range of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little,” he said in prepared remarks at an event hosted by the Economic Club of New York.“Given the uncertainties and risks, and how far we have come, the [Federal Open Market Committee] is proceeding carefully.”The outlook for Fed’s interest rate policy has been muddied recently by mixed economic data and added geopolitical tensions sparked by the Israel-Hamas war.The “highly elevated” geopolitical tensions “pose important risks to global economic activity”, the Fed chair said, with “highly uncertain” implications.A jump in US borrowing costs has also complicated the Fed’s assessment of how much higher to raise interest rates in its quest to tame inflation, especially at a time when price pressures persist in corners of the economy and labour demand remains elevated.The yield on the benchmark 10-year Treasury note jumped to 4.996 per cent — its highest level since July 2007 — after Powell spoke. The two-year Treasury yield, which moves with interest rate expectations, dipped by 0.03 percentage points to 5.19 per cent, as investors bet that a quarter-point rate increase at the next Fed meeting was unlikely.Many officials — including Lorie Logan, the hawkish president of the Dallas Fed, and governor Christopher Waller — have suggested that the surge in yields could offset the need for the central bank to raise rates again this year. Fed policymakers previously indicated they thought the central bank would need to lift rates at least once again this year to beat back inflation.Powell said the Fed was “attentive” to the rise in yields, which could have “implications for the path of monetary policy”.In a discussion after his remarks, Powell said the recent rise in borrowing costs did not appear to reflect market expectations of higher inflation or changes to the short-term outlook for rates. Rather, he said the rise in yields could reflect market participants’ views that the economy had proven more resilient than expected, or traders’ concerns about fiscal deficits. Asked if the moves in the bond market could offset the need for further Fed rate rises, Powell said: “At the margin it could.”The Fed first pressed pause on its historic interest-rate rising campaign in June, after 10 consecutive increases, before raising rates by a quarter-point again in July. It also opted against an increase at its meeting last month. But even as the pace of monetary tightening has slowed, officials insist it is too early to declare victory in the fight against inflation. Officials have been surprised by the strength of the US economy, which has retained momentum despite one of the most aggressive rate-rising campaigns in the Fed’s history. Powell said this could reflect that demand is less affected by changes in interest rates than in the past — or that rates have not been “high enough for long enough”.He also hinted that the short-term “neutral rate” — a term used by economists to refer to the rate level that neither stimulates nor suppresses demand — could now be higher than in the past.Powell said the Fed would continue to watch for evidence that growth was not slowing sufficiently, or that the labour market remained tight, either of which “could warrant further tightening of monetary policy”.The event at which Powell spoke was initially delayed after protesters stormed the stage, saying that climate-related risks posed the biggest threat to the global economy.Additional reporting by Kate Duguid in New York More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A deal to allow EU carmakers to benefit from US subsidies under the Inflation Reduction Act is under threat 24 hours before it was expected to be agreed at a summit on Friday.  US and EU teams are in intensive talks to rescue the accord over Washington’s demands on environmental and labour conditions. The biggest hurdle is the US’s insistence for countries where European carmakers are sourcing their electric battery materials from to allow inspections of mines and processing centres, according to EU diplomats.Brussels says it has similar environmental and labour standards through its own regulations and the inspection idea is impractical, said officials. The proposed deal — scheduled to be clinched on Friday when US president Joe Biden hosts EU leaders Charles Michel and Ursula von der Leyen — is supposed to reduce tensions over the IRA, which dispenses $390bn of tax credits and subsidies to companies producing green technology in the US.The IRA gives $7,500 in consumer tax credits to electric vehicles provided, among other things, its battery has had at least some of its critical mineral content either recycled or extracted and processed in the US or a country with which the US has a free trade or a critical minerals agreement (CMA).The raw materials covered are lithium, cobalt, manganese, nickel and graphite, the main components of vehicle batteries.Although the EU has little production or processing of critical materials, it has said that such a CMA with the US would increase investment in the sectors. Washington struck a CMA with Japan in May but its terms for the EU are more onerous. The US has had a trade agreement with Japan since 2020 covering some agricultural and industrial goods and digital trade, making the minerals agreement simpler, according to people familiar with the talks. Any EU pact must adhere to the Biden administration’s new definition of a trade agreement, which includes strict provisions on workers’ rights and the environment, said officials.France and Germany had lobbied hard for the inclusion of their large car industries in the IRA and the proposed deal had quieted EU complaints about unfair subsidies incentivising companies to relocate to the US.But those tensions could flare up again, according to diplomats. A meeting of member state ambassadors on Wednesday urged the European Commission, which is negotiating, to stand firm.Any deal must be ratified by the member states and European parliament.“It does not look like it will be possible to find an agreement now but we hope it is concluded soon, whether [Friday] or later,” said an EU diplomat. Talks were also continuing over steel and aluminium tariffs. The two sides have yet to agree over the terms of a green steel and aluminium club, which would put levies on imports from China.Officials believe the negotiations will continue after the summit ahead of a deadline of December 31, after which US section 232 tariffs levied on national security grounds would be reimposed on imports from the EU.The US could postpone the move provided the talks are progressing, they said. The commission said that Biden and von der Leyen on Friday will “aim to deliver important progress in our negotiations” both on steel and on critical materials, on the Global Steel Arrangement and a CMA.“Negotiations are ongoing,” the commission said. “Our objective with the CMA is to address EU concerns over key aspects of the US Inflation Reduction Act and support the development of EU-US critical minerals supply chains.”The US trade representative’s office did not respond to a request to comment.  More