Sydney (Reuters) – Asian stock markets were quiet on Monday, and the dollar didn’t change much. This was because a shocking U.S. jobs report put an end to talk of a recession and made the case for more huge rate hikes.
The markets quickly determined that the Federal Reserve is likely to raise interest rates by 75 basis points in September. This caused two-year yields to rise by 20 basis points on Friday, which made the curve even flatter.
The big news only raised the stakes for the U.S. consumer price report for July, which will be released on Wednesday. Headline growth could slow a little, but core inflation is likely to keep going up.
Bruce Kasman, head of economic research at JPMorgan, said, “Despite slow growth and an expected drop to a 0.2 percent m/m July CPI gain, the Fed will likely raise policy rates by 75 basis points at its September meeting” (NYSE: JPM).
“The most important question is whether it will decide that a significant rise in the unemployment rate is needed to achieve its goals,” he said. “If this is the case, its rate guidance will go up by a lot, and it will send a message that it is likely to be less sensitive to short-term growth disappointments.”
Because of the risk, both the S&P 500 futures and the Nasdaq futures fell by 0.1 percent.
After three days of gains, MSCI’s broadest index of Asia-Pacific shares outside of Japan fell by 0.5%. The Nikkei in Japan went up by 0.3% and the KOSPI in South Korea didn’t change. The value of Chinese blue chips went down by 0.2%.
The EURO STOXX 50 futures did better and went up 0.5%, while the FTSE futures went up 0.3%.
After some compromises on taxation, the U.S. Senate passed a $430 billion bill to fight climate change on Sunday. However, the market didn’t seem to react much to this news.
Analysts at Goldman Sachs said, “The changes don’t seem likely to make a big difference in the net fiscal impact of the law, which still seems likely to be less than 0.1% of GDP over the next few years as new spending and new taxes roughly cancel each other out” (NYSE:GS).
The one-of-a-kind dollar
Two-year Treasury bond yields rose to 3.25 percent, 40 basis points higher than 10-year bond yields.
Bonds were also bought as a safe haven because people were worried about Beijing’s threats against Taiwan while China did military drills around the island for four days.
Data from China that came out over the weekend showed that exports went up by 18% in July, which was a surprise, while imports only went up by 2.3%.
The jobs boom and the rise in yields helped the U.S. dollar, which was up against a group of currencies by 0.8% on Friday and was worth 106.640. [FRX/]
Alan Ruskin, global head of G10 FX strategy at Deutsche Bank, said, “This key data point is a million miles from a current recession, both in terms of changes in employment and levels of unemployment” (ETR: DBKGn).
“This kind of information supports the idea of “U.S. exceptionalism” and is very good for the USD against all other currencies.“
The dollar stayed at 135.27 yen after rising 1.6% on Friday, while the euro was struggling at $1.0182 and not far from chart support around $1.0095.
The news that Moody’s (NYSE: MCO) had cut Italy’s outlook to negative didn’t help the single currency. This was because the resignation of Prime Minister Mario Draghi shook up Italy’s political scene.
Gold lost out when the dollar went up, but it was able to bounce back from its lows on Friday and is now worth $1,773. [GOL/]
Oil prices made a little bit of progress after having their worst week since April due to fears that global demand will slow down because central banks are still tightening. [O/R]
Brent went up by 25 cents to $95.17 per barrel, and U.S. crude went up by 19 cents to $89.20 per barrel.
