A man looks at an electronic board displaying Japan’s Nikkei index outside a brokerage shop in Tokyo, Japan August 29, 2022. REUTERS/Kim Kyung-Hoon
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HONG KONG, Aug 30 (Reuters) – Stock and bond markets tried to stabilize on Tuesday as investors focused on inflation data and this week’s US jobs report to gauge whether priced-in rate hikes around the world are on track justified.
In early afternoon, MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) was up 0.2%, while Japan’s Nikkei stock index (.N225) was up 1.2%, helped in part by a renewed weakness in the Japanese yen.
Wall Street indices fell Monday but the pace of selling slowed and US stock futures edged up 0.3% in Asia. European equity futures were up, with pan-regional Euro Stoxx 50 futures up 0.6% and German DAX futures up 0.6%. FTSE futures fell 0.26%.
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In addition to interest rates, the health of China’s economy is also at the center of investor concerns. China’s benchmark Shanghai Composite Index (.SSEC) slipped 0.6% on news that several major cities had tightened COVID-19 restrictions. Continue reading
Hong Kong’s Hang Seng (.HSI) was also dragged down 0.9% as investors scaled back enthusiasm over a China-US deal on access to audit records of Chinese companies. Continue reading
At the Jackson Hole conference last week, Federal Reserve Chair Jerome Powell and European Central Bank speakers struck an aggressive tone, spurring the sale of bonds and equities as traders upgraded near-term interest rate expectations.
“For the next few weeks at least, the focus of markets will be on the Fed’s likely actions,” said Manishi Raychaudhuri, head of APAC equity research at BNP Paribas.
“There used to be talk of a possible Fed rate cut, maybe in the second half of 2023 or so, but that’s kind of falling by the wayside now,” he said.
“Longer higher (interest rate) is possibly the kind of narrative that builds.”
Futures markets have a more than two-thirds chance that the ECB will hike rates by 75 basis points in September and see a roughly 70% chance that the Fed will do the same.
US nonfarm payrolls data is due Friday and markets may not like strong numbers if they support the basis for aggressive rate hikes to continue. Before that, Germany’s inflation numbers, due Tuesday at 1200 GMT, and China’s manufacturing survey, due Wednesday, will be closely watched.
US Treasuries calmed down on Tuesday morning. The two-year yield fell to 3.3987% after rising to 3.489% on Monday, its highest level since late 2007.
Benchmark 10-year yields also fell to 3.0670% from Monday’s 3.13%. Gilts are likely to come under pressure as UK markets return from a Monday bank holiday on Tuesday.
The US dollar stabilized after an overnight tumble, although the euro tried to regain parity, helped by ECB hike bets and a slowdown in gas prices.
The dollar index, which measures the currency’s value against a basket of peers, rose 0.1% to 108.73, not far from a two-decade high of 109.48 hit a day earlier. The dollar traded at $0.9999 per euro and bought 138.52 yen.
Rodrigo Catril, a strategist at National Australia Bank, said the euro would be tested later in the week by upcoming euro-zone inflation figures, US employment data and Russia’s cuts in gas flows.
“The European story really is all about the economic outlook… no energy means no growth,” he said, adding it wouldn’t be surprising if the euro fell back to $0.96.
Oil posted gains mainly on the prospect of production cuts as traders look ahead to a producers’ meeting on September 5th. US crude fell 0.4% to $96.59 a barrel and Brent crude fell to $104.2.
Gold was slightly lower. Spot gold was trading at $1,735.52 an ounce.
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Adaptation by Stephen Coates
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