The dollar snapped two days of losses and global equities markets were mixed as investors awaited US midterm elections and inflation data.
(Bloomberg) — The dollar snapped two days of losses and global equities markets were mixed as investors awaited US midterm elections and inflation data.
US stock futures edged lower, contracts for Europe fluctuated and a gauge of Asian shares rose, led by gains in Japan.
Chinese equities fell, halting their recent rally, as traders considered a jump in virus infections and official comments defending Covid-Zero. The heaviest falls were in Hong Kong-listed technology companies.
Markets are focused on the elections later Tuesday for potential gridlock in government — which historically has been good for US stocks — and on the consumer price print Thursday for its impact on Federal Reserve interest-rate hikes.
The greenback made small gains versus all of its Group-of-10 currency counterparts. The Bloomberg Dollar Spot Index had dropped 0.4% Monday, extending the 1.7% loss from Friday, which was its worst day since March 2020.
The inflation reading is coming after the core consumer price index rose more than forecast to a 40-year high in September. Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone.
“Inflation is going up. It may be coming down periodically. But it’s going up,” Richard Harris, chief executive of Port Shelter Investment Management, said on Bloomberg Television. “The market is kind of uncertain — it’s hoping for the best but really should be preparing for the worst.”
Yet opinion is divided on the broad outlook for markets and the economies.
Goldman Sachs Group Inc.’s top economist said there was still a “very plausible” path for the US economy to avoid a recession.
JPMorgan Chase & Co.’s Marko Kolanovic warned of the risk to stocks from ongoing Fed hawkishness, and Morgan Stanley’s Mike Wilson said companies will need to aggressively shrink expenses, including through layoffs, before he becomes more optimistic on US equities.
Treasury yields inched higher while benchmark Australian and New Zealand government bond yields gained more than 10 basis points.
Japan’s benchmark 10-year bond yields were stuck at the 0.25% upper limit of the central bank’s target range as trading dried up.
The Bank of Japan has been scooping up so many 10-year bonds there may soon be little left to buy. It held 73% of 10-year government notes with a residual maturity of at least seven years as of end-October, according to data compiled by Bloomberg.
Meanwhile, swaps markets are leaning toward a 50 basis-point Fed rate increase in December, after a fourth consecutive jumbo hike to a target range of 3.75% to 4% at last week’s meeting. Rates are expected to peak slightly above 5% around mid-2023.
Key events this week:
- Euro-zone retail sales, Tuesday
- US midterm elections, Tuesday
- EIA oil inventory report, Wednesday
- China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
- US wholesale inventories, MBA mortgage applications, Wednesday
- Fed officials John Williams, Tom Barkin speak at events, Wednesday
- US CPI, US initial jobless claims, Thursday
- Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.1% as of 3:18 p.m. Tokyo time. The S&P 500 rose 1% Monday
- Futures on the Nasdaq 100 fell 0.1%. The Nasdaq 100 fell 1.1%
- Euro Stoxx 50 futures were little changed
- The Topix Index rose 1.2%
- South Korea’s Kospi index rose 1.1%
- The S&P ASX Index rose 0.4%
- The Hang Seng Index fell 0.8%
- The Shanghai Composite Index fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.1% to $1.0005
- The Japanese yen was little changed at 146.68 per dollar
- The offshore yuan fell 0.4% to 7.2558 per dollar
Cryptocurrencies
- Bitcoin fell 4.5% to $19,744.83
- Ether fell 6.5% to $1,473.61
Bonds
- The yield on 10-year Treasuries was little changed at 4.22%
- Japan’s 10-year yield was little changed at 0.25%
- Australia’s 10-year yield advanced 13 basis points to 4.03%
Commodities
- West Texas Intermediate crude fell 0.5% to $91.33 a barrel
- Spot gold fell 0.3% to $1,670.17 an ounce
–With assistance from Stephen Kirkland, Vildana Hajric, Jan-Patrick Barnert and Haidi Lun.
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