Yields, Dollar Rise on Fed Views as Offers of Sanctuary Ease: Markets Wrapped

(Bloomberg) – Stocks in Asia appear set for a firmer session on Wednesday as concerns over US-China tension eased slightly, although a rise in bond yields and the dollar due to hawkish views of the Federal Reserve may keep the mood cautious.

Futures pointed to muted openings in Japan and Australia and the possibility of Hong Kong undoing some of the losses raised by concerns over US House Speaker Nancy Pelosi’s visit to Taiwan. The S&P 500 and Nasdaq 100 contracts were volatile after a drop in Wall Street shares on Tuesday.

Treasuries slipped, pushing the two-year yields back above 3%. A chorus of Fed officials said the central bank had some way to go to control high inflation, prompting traders to scale back their bets on easing next year.

The rise in yields helped lift the dollar measure the most in about three weeks. Declining demand for havens from geopolitical risks pushed the Yen lower.

Comments from Federal Reserve officials including Mary Daly, Loretta Meester and Charles Evans highlight the challenging background of rising borrowing costs, price pressures and slowing economic growth facing markets.

San Francisco Fed President Daly said the Fed has “a long way to go” to reach price stability around the 2% inflation target. Its Cleveland counterpart, Meester, said it wanted to see “very compelling evidence” that month-to-month price increases are moderate.

“It’s hard to see any meaningful improvement in stocks right now,” Xi Qiao, managing director of global wealth management at UBS Group AG, said on Bloomberg TV. “The market will be trading largely mixed, and it will remain volatile until we have more certainty.”

missile tests

China, which considers Taiwan part of its territory, announced missile tests and military exercises around the island after Pelosi became the most senior US politician to visit in 25 years.

While market fears of a sharp deterioration in US-China relations appear to have abated, the bad faith highlights the risk of a long-term economic decoupling with a range of potential impacts, such as more persistent inflation as supply chains adjust.

China’s Amperex Technology Co., Ltd., the world’s largest electric car battery maker, has decided to hold off on announcing a multi-billion dollar plant in North America to supply Tesla Inc. and Ford Motor Co. Because of the tensions raised by Pelosi’s trip to Taiwan, according to people familiar with the matter.

Elsewhere, oil fell below $94 a barrel as traders began the countdown to the OPEC+ meeting for crude oil production. Gold retreated and Bitcoin fluctuated around $23,000.

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What you will watch this week:

  • OPEC+ meeting on production, Wednesday
  • US Factory Orders, Durable Goods, ISM Services, Wednesday
  • Bank of England interest rate decision, Thursday
  • US Initial Jobless Claims, Trade, Thursday
  • Cleveland Fed President Loretta Meester is scheduled to speak, Thursday
  • US employment report for July, Friday

Some of the main movements in the markets:

Stores

  • S&P 500 futures were up 0.1% as of 7:19 am in Tokyo. The S&P 500 fell 0.7%.
  • Nasdaq 100 futures have changed little. Nasdaq 100 index fell 0.3%.
  • Nikkei 225 futures rose 0.3%.
  • S&P/ASX 200 futures down 0.2%
  • Hang Seng futures added 1.1%

coins

  • The Bloomberg Spot Dollar Index is unchanged
  • The euro was at 1.0170 dollars
  • The Japanese yen was at 132.90 to the dollar, up 0.2%.
  • The external yuan reached 6.7761 to the dollar

bonds

  • The 10-year Treasury yield advanced 18 basis points to 2.75%.

goods

  • West Texas Intermediate crude reached $93.69 a barrel, down 0.8%
  • Gold was at $1,760.32 an ounce

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