Stocks in Asia struggled to gain traction and US equity futures fluctuated, as negative sentiment persisted amid fears that major central banks will keep hiking rates until inflation is tamed, raising the risk of a recession.
(Bloomberg) — Stocks in Asia struggled to gain traction and US equity futures fluctuated, as negative sentiment persisted amid fears that major central banks will keep hiking rates until inflation is tamed, raising the risk of a recession.
Inflation fears were further stoked as oil surged to trade near $82 a barrel on indications that the OPEC+ alliance is considering slashing production by more than 1 million barrels a day when it meets this week. Commodity currencies gained.
The pound rebounded on a BBC report that the UK government may reverse its tax-cut policy. It had earlier fell, while European stock contracts lost 2% amid thin volumes, with the UK’s economic turmoil and challenges facing Credit Suisse Group weighing on sentiment.
Equities made small gains in Japan and dropped in Hong Kong and Australia. Trading in Asia was muted with a week-long closure of Chinese markets for Golden Week, and holidays in South Korea and Sydney. Treasuries rallied.
The week’s cautious start comes after US stocks posted their third straight quarter of losses for the first time since 2009. Risk assets have been in a tailspin since the Federal Reserve delivered a third jumbo hike last month and officials repeatedly warned of more pain to come.
“Risk off seen from multiple forces heading into the new month or quarter as corporate earnings misses continue to raise the threat of an ugly earnings season ahead,” a group of Saxo Capital Markets analysts wrote in a note.
Confidence among Japan’s large manufacturers unexpectedly worsened for three straight quarters following the yen’s rapid depreciation and deterioration in the global economic outlook, adding another headwind for local equities. The yen weakened past 145 per dollar, nearing the level where Japanese authorities intervened last month to support the currency.
Shorter Treasury yields fell more than longer ones in a so-called bull-steepening, with the yield on two-year note at around 4.2% and the 10-year at about 3.8%. The dollar swung between gains and losses versus major currencies.
“Last week’s developments reinforced our expectation that we will see further tightening in financial conditions, but also illustrated the short-term two-way volatility, which will likely accompany it,” Citigroup Inc. Global Head of Currency Analysis Ebrahim Rahbari wrote in a note to clients. With the three main forces at play — rising real rates, volatility and the US dollar — “we therefore remain very bearish regarding the outlook for global risk assets,” he wrote.
The pound was earlier the worst performer among Group-of-10 currencies. Chancellor of the Exchequer Kwasi Kwarteng is expected to make a statement in the next hour, reversing the proposed scrapping of the 45% rate of income tax, the BBC reported.
Brazil-linked global assets will be in focus on Monday as the country’s presidential election is headed to a run-off vote on Oct. 30.
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Investors are now awaiting jobs data this week for further clues about the Fed’s rate-hike trajectory. Upcoming inflation and GDP readings will also provide details on whether price pressures are easing meaningfully. Rate decisions in Australia and New Zealand are also expected, with these economies considered bellwethers for developed market peers.
Geopolitical tensions also continue to simmer as Russian forces faced a new operational defeat — this time in a strategic eastern Ukrainian town — to cast further doubt on the “forever” annexation of four occupied regions by President Vladimir Putin that he vowed was irreversible. President Joe Biden declared that a massive leak from the Nord Stream gas pipeline system in the Baltic Sea was an intentional act.
Key events this week:
- Eurozone manufacturing PMIs, Monday
- US construction spending, ISM Manufacturing, light vehicle sales, Monday
- Fed’s Raphael Bostic, John Williams speak at events, Monday
- Euro-area and EU finance ministers meet, Monday
- Eurozone PPI, Tuesday
- US factory orders, durable goods, Tuesday
- Fed’s John Williams, Lorie Logan, Loretta Mester, Mary Daly speak at events, Tuesday
- Eurozone services PMIs, Wednesday
- OPEC+ meeting begins, Wednesday
- Fed’s Raphael Bostic speaks, Wednesday
- Eurozone retail sales, Thursday
- US initial jobless claims, Thursday
- Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
- US unemployment, wholesale inventories, nonfarm payrolls, Friday
- BOE Deputy Governor Dave Ramsden speaks at event, Friday
- Fed’s John Williams speaks at event, Friday
Key market moves:
Stocks
- S&P 500 futures added 0.2% as of 6:56 a.m. London time. S&P 500 Index fell 1.5% on Friday
- Nasdaq 100 futures dropped 0.1%. Nasdaq 100 Index slid 1.7% on Friday
- Japan’s Topix index climbed 0.6%
- Hong Kong’s Hang Seng Index was down 0.9%
- S&P/ASX 200 Index slid 0.3%
- Euro Stoxx 50 futures tumbled 1.5%
Currencies
- The Bloomberg Dollar Spot Index was down 0.3%
- The euro climbed 0.3% to 0.9830 per dollar
- The British pound gained 0.8% to 1.1268 per dollar
- The Japanese yen slid 0.1% to 144.76 per dollar
- The offshore yuan rose 0.1% to 7.1372 per dollar
Cryptocurrencies
- Bitcoin increased 0.2% to $19,270
- Ether was down 0.5% to $1,296
Bonds
- The yield on 10-year Treasuries decreased six basis points to 3.77%
Commodities
- West Texas Intermediate rose 2.9% to $81.80 a barrel
- Gold climbed 0.4% to $1,667.21 per ounce
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