(Bloomberg) — Asian stocks are set to fall on Thursday after a weak Treasury bond auction dealt another blow to sentiment on Wall Street.

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Futures contracts for Japan, Australia and Hong Kong fell, while an index of U.S.-listed Chinese stocks fell 1.5 percent. Both the S&P 500 and the tech-heavy Nasdaq 100 fell, erasing early gains that had initially been boosted by dovish signals from the Bank of Japan.

The central bank said on Wednesday that policymakers would not raise interest rates during periods of volatile markets, leading to further weakening of the yen. The Japanese currency was stable on Thursday after falling 1.6 percent against the dollar on Wednesday.

There was a general sell-off in Treasuries across the board on Wednesday, weighed down by weak demand for a 10-year bond auction. The 10-year bond yield rose five basis points to 3.94 percent. Treasuries also came under pressure as 17 blue-chip companies offered $31.8 billion in debt, the largest sum of U.S. investment-grade issuance this year.

The auction result is “consistent with our view that we should expect a further correction in yields in the near future,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. “The revaluation after what was actually only a moderately weak labor market report seems far too exaggerated.”

After gaining nearly 2% earlier in the session, the S&P 500 closed 0.8% lower. Nvidia Corp. led the losses among megacaps. Super Micro Computer Inc. plunged 20% on disappointing results. In late trading, Warner Bros. Discovery Inc., the parent company of CNN and TNT, plunged after taking a $9.1 billion writedown as it wrote down the value of its traditional television networks.

Markets have been in a nosedive since last week’s economic data raised concerns that the Federal Reserve’s decision to keep interest rates at a 20-year high risks an even deeper economic slowdown.

Economists at JPMorgan now estimate there is a 35 percent chance that the US economy will slip into recession by the end of the year; at the beginning of last month, the probability was 25 percent.

“Equities remain vulnerable,” said Fawad Razaqzada of City Index and Forex.com. “More signs of a bottom are needed to spur bulls back on. Overall, sentiment remained subdued. Not many people were confident about buying on this recent dip, especially with the upcoming US CPI release next week.”

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The sharp fall in the yen on Wednesday had an impact on the foreign exchange markets. The Mexican peso benefited, rising 1.5 percent against the dollar. The Indonesian rupiah and the Brazilian real also gained against the dollar on Wednesday.

Oil prices rose as investors remained concerned about the possibility of an Iranian retaliatory strike against Israel.

Carry trades

The global carry trade unwind, triggered last week by the BoJ’s surprisingly more aggressive stance and which in turn significantly strengthened the yen, has eased considerably, according to Quincy Krosby of LPL Financial.

“Markets globally have breathed a sigh of relief as the pace of unwinding eases, but the yen’s relationship to the dollar is also an important part of the carry trade calculation,” she noted. “A weaker dollar, driven by market perceptions that the Fed will soon begin an easing cycle, should support a stronger yen – which negatively impacts trading.”

The earlier gains in equities were driven by confidence in Japan, which emerged after the country’s sharp swings last week. The moves were boosted by the prospect that the Fed would cut interest rates more aggressively, prompting traders to quickly unwind once-popular yen-funded carry trades – including crowded positions in U.S. technology stocks.

Important events this week:

• Industrial production Germany, Thursday

• US initial jobless claims, Thursday

• Speech by Fed Chairman Thomas Barkin on Thursday

• China PPI, CPI, Friday

Some of the key market movements:

Shares

• S&P 500 futures fell 0.4% as of 7:14 a.m. Tokyo time

• Hang Seng futures fell 0.9 percent

• S&P/ASX 200 futures fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro was little changed at 1.0924 dollars

• The Japanese yen rose 0.2% to 146.40 per dollar

• The offshore yuan remained virtually unchanged at 7.1713 per dollar.

• The Australian dollar remained almost unchanged at USD 0.6515

Cryptocurrencies

• Bitcoin fell 0.1% to $55,084.54

• Ether fell 0.2% to $2,345.91

raw materials

This story was created with the assistance of Bloomberg Automation.

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