US stock index futures fall as bonds fall in Asia

Fed says bond maturity runoff will be key tool to sink balance sheet

“While rising rates are likely to continue to pressure highly valued parts of the equity market, we don’t see the Fed over-tightening and risking the economy or a recession,” Kerry Craig, a JPMorgan Asset Management global market strategist, wrote in a research note.

U.S. stock index futures fell, erasing earlier gains, as government bonds tumbled across Asia on Thursday after Federal Reserve Chairman Jerome Powell’s most recent hawkish remarks. March futures following the Nasdaq 100 Index slid as much as 2.2%, while contracts on the S&P 500 and Dow Jones dropped 1.8% and 1.5%, respectively. New Zealand’s 10-year yield came to the most noteworthy since November 2018 as its Australian counterpart surged toward the peak of the country’s October bond market meltdown. Yields likewise moved higher in China, Japan and South Korea.

Powell reinforced the Fed’s determination to quell the highest inflation in a generation amid a robust economic recovery from the pandemic. The central bank also said it expects the process of balance-sheet reduction will commence after it has begun raising borrowing costs.

“While Powell is certainly holding the base case that they expect inflation to moderate in the second half of this year, I think his body language is that he is very much concerned about inflation remaining more persistent,” said David Sekera, chief U.S. market strategist at Morningstar.

“The market is really trying to get a better handle on how fast the Fed will let the size of the balance sheet run off as liquidity will then get pulled out of the market, the market is trying to determine how to price that in,” Sekera said.

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