Stocks and bonds grope as attention turns to data

A man looks at an electronic chart displaying Japan’s Nikkei index outside a brokerage house in Tokyo, Japan, August 29, 2022. REUTERS/Kim Kyung-Hoon

Join now for FREE unlimited access to Reuters.com

HONG KONG, Aug 30 (Reuters) – Stock and bond markets tried to stabilize on Tuesday as investors focused on inflation data and this week’s U.S. labor market report to assess whether the interest rate hikes that have been priced in around the world are warranted.

In the early afternoon, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) was up 0.2%, while Japan’s Nikkei stock index (.N225) rose 1.2%, partly helped by a new wave of weakness in the Japanese yen.

Wall Street indices fell on Monday, but the pace of selling was reduced and US stock futures edged up 0.3% in Asia. European equity futures gained strength, with pan-regional Euro Stoxx 50 futures up 0.6% and German DAX futures up 0.6%. FTSE futures fell 0.26%.

Join now for FREE unlimited access to Reuters.com

Besides interest rates, the health of the Chinese economy is also at the forefront of investors’ concerns. China’s benchmark Shanghai Composite Index (.SSEC) lost 0.6% after news that several major cities had tightened COVID-19 restrictions. Read more

Hong Kong’s Hang Seng (.HSI) also fell 0.9% as investors began to rewind their excitement over a China-U.S. agreement on access to government documents. audit of Chinese enterprises. Read more

At the Jackson Hole conference last week, Federal Reserve Chairman Jerome Powell and speakers from the European Central Bank struck a hawkish tone, driving bonds and stocks to sell off as traders surged short-term interest rate expectations.

“Markets will focus for the next two weeks at least on likely Fed action,” said Manishi Raychaudhuri, head of APAC equity research at BNP Paribas.

“Previously, there was talk of a pivot of a possible interest rate cut by the Fed, possibly in the second half of 2023 or so, but now that is falling out of favor,” he said. .

“Higher for longer (interest rate) is perhaps the kind of narrative that is being built.”

Futures markets have a more than two-thirds chance that the ECB will raise rates by 75 basis points in September, and see about a 70% chance that the Fed will do the same.

U.S. nonfarm payrolls data is due Friday, and markets may not like a strong number if it supports the basis for continued aggressive interest rate hikes. Ahead of that, German inflation figures due Tuesday at 12:00 GMT and China’s manufacturing survey due Wednesday will be watched closely.

US Treasuries calmed down on Tuesday morning. The two-year yield fell to 3.3987%, after hitting 3.489% on Monday, its highest since late 2007.

Benchmark 10-year yields also fell to 3.0670% from 3.13% on Monday. Gilts are likely to come under pressure when UK markets return on Tuesday after a bank holiday Monday.

The US dollar stabilized after an overnight decline, although the euro tried to regain parity, helped by ECB bullish bets and a cooling in gasoline prices.

The dollar index, which measures the value of the currency against a basket of peers, rose 0.1% to 108.73, not far from the 20-year high of 109.48 hit the previous day. The dollar traded at $0.9999 per euro and bought 138.52 yen.

National Australia Bank strategist Rodrigo Catril said the euro will be tested by upcoming eurozone inflation figures, US jobs data and Russian gas flow cuts later in the week.

“European history is really about economic prospects…no energy means no growth,” he said, adding that it would not be surprising if the euro fell back to 0.96. dollar.

Oil mostly held on to gains on the prospect of production cuts, as traders anticipate a September 5 producers’ meeting. US crude fell 0.4% to $96.59 a barrel and Brent fell to $104.2.

Gold was slightly lower. Spot gold was trading at $1,735.52 an ounce.

Join now for FREE unlimited access to Reuters.com

Editing by Stephen Coates

Our standards: The Thomson Reuters Trust Principles.

Leave a Comment

Your email address will not be published.