The greenback’s rally paused and stocks futures fell amid elevated oil prices that reignited concerns over inflation.
The dollar slipped against its Group-of-10 peers, but remained near the highest since March as Treasury yields pushed up across tenors on Tuesday on the back of heavy corporate bond deals in global high-grade markets. Yields slightly declined during Asian trading.
The dollar’s earlier strength had prompted Japan’s top currency official Masato Kanda to say Wednesday he wouldn’t rule out any options if currency moves continue. The Chinese central bank also moved to defend the yuan with another record strongest daily fixing, setting a stronger-than-expected fixing everyday since late June. The yen gained, while the offshore yuan steadied.
European and US equity contracts dropped following a decline in the S&P 500 to below 4,500 in the previous session. Asian stocks traded mixed, with benchmark indexes fluctuating in Hong Kong and mainland China, but rising in Japan for an eighth day. Chinese property developers extended their gains, with Sunac China Holdings Ltd. up more than 70% before retreating, on speculations that more stimulus will come.
Meanwhile, West Texas Intermediate held near the highest since November and Brent hovered around $90 a barrel — after breaching the level Tuesday — as the largest OPEC+ producers extended their supply cuts to year-end. Oil’s recent gains pose a headwind for much of Asia, threatening economic growth and risk keeping interest rates high.
Brent may continue to trade high on the supply cuts, with the price expected to hover at $90 from now until year-end and at $95 in the first half of next year, according to Heng Koon How, head of markets strategy at United Overseas Bank Ltd. in Singapore.
“A key risk to our forecast of higher prices is further economic weakness in China that may reduce energy demand,” he wrote in a note. “However, the immediate concern appears to be sticky global inflationary risks as energy prices climb anew.
Careful Move
Traders will be looking at a slew of economic data from the US this month for clues on the Federal Reserve’s next rate decision.
Fed Governor Christopher Waller said policymakers can afford to “proceed carefully” with tightening given recent data showing inflation continuing to ease. “There is nothing that is saying we need to do anything imminent anytime soon,” Waller told CNBC. Meantime, Fed Bank of Cleveland President Loretta Mester said the central bank may need to raise rates “a bit higher,” but stopped short of saying what officials should do at their next meeting.
“This higher-for-longer interest rate environment is going to last,” Eric Lynch, managing director at Scharf Investments, said on Bloomberg Television. “The only way to kind of crack this core inflation above 4%, and now we’ve got oil coming back, is to continue slowing down the economy.”
JPMorgan Chase & Co.’s Marko Kolanovic reiterated Tuesday that investors should fade the artificial-intelligence induced stock-market rally, arguing that he would turn more optimistic on equities if interest rates begin falling globally in the near term. Meantime, Morgan Stanley’s Michael Wilson said US equity investors are in for disappointment as economic growth is set to be weaker than expected this year.
Elsewhere, gold was little changed after declining the most in more than a month in the previous session.
Key events this week:
- Eurozone retail sales, Wednesday
- Germany factory orders, Wednesday
- US trade, ISM services index, Wednesday
- Canada rate decision, Wednesday
- Bank of England Governor Andrew Bailey testifies to the UK parliament’s Treasury Select Committee, Wednesday
- Federal Reserve issues Beige Book economic survey, Wednesday
- Boston Fed President Susan Collins speaks, Wednesday
- Dallas Fed President Lorie Logan speaks, Wednesday
- China trade, forex reserves, Thursday
- Eurozone GDP, Thursday
- US initial jobless claims, Thursday
- Bank of Canada Governor Tiff Macklem to speak on the Economic Progress Report, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- New York Fed President John Williams participates in moderated discussion at the Bloomberg Market Forum, Thursday
- Japan GDP, Friday
- Germany CPI, Friday
- US wholesale inventories, consumer credit, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 6:52 a.m. London time. The S&P 500 fell 0.4%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 rose 0.1%
- Japan’s Topix rose 0.6%
- Australia’s S&P/ASX 200 fell 0.8%
- Hong Kong’s Hang Seng was little changed
- The Shanghai Composite was little changed
- Euro Stoxx 50 futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.1% to $1.0735
- The Japanese yen rose 0.4% to 147.12 per dollar
- The offshore yuan was little changed at 7.3088 per dollar
- The Australian dollar rose 0.3% to $0.6395
- The British pound rose 0.1% to $1.2578
Cryptocurrencies
- Bitcoin rose 0.1% to $25,733.97
- Ether was little changed at $1,627.89
Bonds
- The yield on 10-year Treasuries declined one basis point to 4.25%
- Japan’s 10-year yield was unchanged at 0.655%
- Australia’s 10-year yield was little changed at 4.13%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Brett Miller, Jake Lloyd-Smith and Yumi Teso.
