Hong Kong/London As investors waited for the next round of likely bad inflation data and worried about Europe’s energy crisis, an upcoming recession, and more rate hikes, stocks edged up and bonds held steady on Tuesday.
Reated: The dollar is at a two-decade high, and the euro is even higher.
The pan-European STOXX index surged over 1%, driven by bank stocks as lenders were buoyed by the rising prospects of European Central Bank rate rises, while MSCI’s broadest index of Asia-Pacific equities excluding Japan jumped 0.6%.
S&P futures were up 1%, showing that U.S. stocks were likely to follow suit. This was because markets had stopped selling after Federal Reserve Chair Jerome Powell said hawkish things at a conference last week in Jackson Hole.
As traders awaited the latest policy signals and this week’s inflation data, euro zone government bond rates were barely changed, following a week in which yields jumped in response to policymaker inflation worries.
The yield on Germany’s 10-year bond traded at 1.496%, steady on the day but close to Monday’s two-month high of 1.544%.
In addition to interest rates, the health of China’s economy is among the top worries of investors. When it was announced that COVID-19 restrictions have been tightened in many major cities, the Shanghai Composite Index went down by 0.6%.
The Hang Seng in Hong Kong fell 0.37 percent as investors began to temper their optimism about a deal between China and the US regarding access to audit documents of Chinese companies.
Fed Chairman Jerome Powell and European Central Bank speakers at the Jackson Hole conference talked about the need for tougher action to fight inflation. This made traders sell Treasuries and stocks and raise their expectations for short-term interest rates.
Manishi Raychaudhuri, head of APAC stock research at BNP Paribas, stated that the Fed’s probable actions will dominate the markets for at least the next two weeks (OTC:BNPQY).
“Previously, there was discussion of the Fed perhaps reducing interest rates in the second half of 2023,” he added. However, this notion seems to have fallen by the wayside.
“Higher for longer (interest rates) may be the story that is gaining traction.”
Futures markets estimate a more than two-thirds possibility that the ECB will hike rates by 75 basis points in September, and approximately a 70% likelihood that the Fed will do the same.
Reated: The dollar remained steady at around a 2-year high after remarks by a Fed policymaker.
DUE DATE FOR KEY DATA
The U.S. nonfarm payrolls report is coming on Friday, and markets may dislike a good result if it supports the continuance of rapid rate rises.
Before that, people will be paying attention to the German inflation numbers, which will be released on Tuesday at 1200 GMT, and the Chinese manufacturing survey, which will be released on Wednesday.
The price of U.S. Treasuries stabilised on Tuesday morning. The two-year yield dipped to 3.413% after reaching its highest level since late 2007 on Monday, when it reached 3.489%.
In addition, benchmark 10-year rates decreased to 3.0521% from 3.133% on Monday. The gilts are expected to see pressure when British markets reopen on Tuesday after a holiday on Monday.
Following an overnight decline, the U.S. dollar stabilised, while the euro attempted to restore parity, aided by ECB policy rate rise expectations and a decline in gas prices. [FRX/]
The dollar index, which measures the value of the dollar relative to a basket of other currencies, fell to 108.44, not far from the 20-year high of 109.48 it reached the day before. The currency was sold for $0.9999 per euro and 138.52 yen per dollar.
According to Rodrigo Catril, a strategist at National Australia Bank (OTC: NABZY), the upcoming eurozone inflation reports, US employment data, and Russian gas flow restrictions later this week will put pressure on the euro.
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He added that it would not be surprising if the euro went back below $0.96.
As speculators anticipate a Sept. 5 conference of oil producers, the price of oil mostly maintained its gains on the expectation of supply curbs. U.S. crude declined 0.4% to $96.59 per barrel, while Brent crude dropped to $104.8 per barrel.
Spot gold was recently traded at $1,736.52 per ounce, which shows that the strong dollar continues to make gold weak.
