SYDNEY (Reuters) – Asian share markets were mixed on Monday as Israel’s push into Gaza stirred fears of a wider conflict ahead of central bank meetings in the United States, Britain and Japan, the latter of which might see a policy tightening.
The earnings season also continues with Apple (NASDAQ:), Airbnb, McDonald’s (NYSE:), Moderna (NASDAQ:) and Eli Lilly & Co (NYSE:) among the many reporting this week. Results so far have been underwhelming, contributing to the ‘s retreat into correction territory.
“The price action is bad as SPX could not defend a key 4,200 level; risk is it heads to the 200-week moving average of 3,941 before a trading rally,” BofA analysts said.
SPX did edge up 0.4% on Monday to 4,153.5, while Nasdaq futures added 0.5%. EUROSTOXX 50 futures slipped 0.1% and gained 0.2%.
Risk appetite was dulled by Israel’s push to surround Gaza’s main city in a self-declared “second phase” of a three-week war against Iranian-backed Hamas militants.
Asia-Pacific Shares and Chinese Blue Chips
The Asia-Pacific shares index outside Japan saw a slight dip of 0.04%, following a one-year low last week. On the other hand, Chinese blue chips showed a promising increase of 0.6%.
Evergrande Group’s Shares Take a Hit
In a surprising turn of events, shares of China’s Evergrande Group plummeted by as much as 23% during the morning session. However, the losses were later reduced to 5% after Hong Kong’s High Court postponed a request to wind up the beleaguered property developer.
Speculations Around Bank of Japan’s Policy
The Bank of Japan (BOJ) saw a 0.95% drop amid rumors that it might adjust its yield curve control (YCC) policy following the conclusion of its two-day policy meeting on Tuesday.
Analysts’ Expectations
Many market analysts anticipate that the central bank will raise its inflation forecast to 2.0%. However, there’s uncertainty about whether it will completely abandon YCC due to market pressure on bonds.
Barclays’ Perspective
“Given the remaining uncertainty about the wage outlook and the stresses in global bond markets, the BOJ might choose to err on the side of caution. This makes our prediction that YCC will be scrapped a very close call,” said analysts at Barclays. They further added, “The BOJ could still choose to revise the policy but in a less drastic manner, perhaps by raising the ceiling for 10-year yields as it did in July.”
Impact on Global Markets
Yields are currently at their highest since 2013 at 0.89%, and completely abandoning YCC could likely add to the pressure on global markets, which are already reeling from a harsh sell-off in U.S. Treasuries.
What’s Next for the Fed?
Yields on 10-year Treasuries stood at 4.8751% on Monday, having climbed 30 basis points so far this month. The question now is, what’s next for the Fed?
Market Borrowing Costs Reach 16-Year High
Hold on to your hats, folks! Market borrowing costs have just hit a 16-year high at 5.021%. This is a significant development that’s sure to test investor sentiment in the coming week. Especially as the Treasury is set to announce its refunding plans. If you’re like me, you’re probably expecting more increases on the horizon. In fact, NatWest Markets is already predicting a whopping $885 billion of marketable borrowing in the fourth quarter, and another $700 billion in the quarter after that.
Federal Reserve Expected to Maintain Current Policy
With the sharp rise in market borrowing costs, analysts are convinced that the Federal Reserve will maintain its current policy at this week’s meeting. Futures are implying a full chance of rates staying at 5.25-5.5%. The market has also priced in 165 basis points of easing for 2024, starting around mid-year.
According to the analysts at Goldman Sachs, “The Fed appears to have coalesced around the view that the recent tightening in financial conditions led by higher long-term interest rates has made another hike unnecessary.” They estimated that the rise in yields was the equivalent of 100 basis points of rate increases.
Economic Reacceleration and Labor Market Rebalancing
The analysts added, “The story of the year so far has been that economic reacceleration has not prevented further labor market rebalancing and progress in the inflation fight. We expect this to continue in coming months.”
Job figures due this Friday are forecast to show U.S. payrolls rose a still solid 188,000 in October, after September’s blockbuster gain. However, annual growth in average earnings is still seen slowing to 4.0% from 4.2%.
Bank of England Likely to Hold Steady
Across the pond, the Bank of England is also expected to stay on hold this week. Markets are pricing around a 70% chance it is done tightening altogether. So, as we navigate these uncertain financial waters, remember to keep a close eye on these developments. They’re sure to have a significant impact on the global economy.
The Unmoved Dollar Amidst Rising U.S. Yields and Global Uncertainty
Hey there, let’s talk about the recent financial happenings. You know, it’s quite intriguing that despite the rise in U.S. yields, the dollar hasn’t budged an inch higher.
The Dollar’s Stance Amidst Global Turmoil
And guess what? Even the dip in global equity markets and the ongoing tension between Hamas and Israel hasn’t given the dollar a significant boost against risk-sensitive currencies. This observation comes straight from the analysts at Capital Economics. They’ve been keeping a close eye on these trends and shared their insights in a recent note.
They believe that this trend underscores the fact that a relatively optimistic assessment of the U.S. outlook is already factored into the dollar’s current standing.
The Dollar’s Performance Against Other Currencies
Let’s take a look at how the dollar is faring against other currencies. It’s been holding steady against a basket of currencies at 106.56, bouncing back and forth between 105.350 and 106.890 last week. Against the yen, it’s been flat at 149.60, falling short of last week’s peak of 150.78.
The euro, on the other hand, is idling at $1.0563, and hasn’t shown much change so far this month.
Commodity Markets Overview
Now, let’s shift our focus to the commodity markets. Gold has been holding its ground at $1,998 an ounce.
Oil Prices in Flux
Oil prices, however, have been on a bit of a roller coaster ride. They’ve eased off a bit as concerns about demand have overshadowed risks to Middle East supplies, at least for the time being.
One type of oil lost $1 to settle at $89.45 a barrel, while another type fell by $1.13 to $84.41.
So, that’s the financial landscape for you right now. It’s a fascinating world, isn’t it?
Photo: Freepik.com
