Stock figures on a screen at the Tokyo Stock Exchange, operated by Japan Exchange Group in Tokyo, Japan, on Thursday, 29 October 2020. (Photo: Kiyoshi Ota/Bloomberg) The regional index rose 1%, short of rallies of about 2% in the S&P 500 and Nasdaq 100 overnight. Japan led the advance, while Hong Kong and China slipped and US futures fluctuated. European futures edged higher.
A dollar gauge rose and remains near a record. Greenback strength has rattled currencies like the yen and the pound, which earlier hit the lowest since 1985. In Asia, it’s adding to worries of capital outflows as rate differentials with the rest of the world widen, pressuring the region’s stocks.
Treasuries held a climb, leaving the 10-year yield at 3.23%. Bonds got a boost from an oil plunge that put the spotlight on the possibility of cooling inflation.
Australian yields slumped, with the three-year sinking as much as 23 basis points, after the nation’s central bank governor signalled a potential end to outsized interest-rate hikes. Australia’s dollar extended declines.
While oil has trimmed some of its retreat, this week’s swoon flags demand risks from a wave of monetary tightening and China’s Covid travails -- the megacity of Chengdu extended a weeklong lockdown in most downtown areas.
Central banks are walking a tightrope, raising interest rates sharply to tackle inflation while remaining leery of sparking a damaging economic contraction in the process. The uncertainty is whipsawing markets and has saddled equities and bonds with steep losses this year.
“The stock market has rallied several times even as the bond market has shown lots of negative volatility and the dollar continues to creep up,” Federated Hermes senior equity strategist Linda Duessel said on Bloomberg Television. “You have to wonder when we can expect a sustained rally here or to think we are out of the woods.”
Fed officials reiterated their determination to get inflation under control. Vice Chair Lael Brainard said interest rates will need to rise to restrictive levels, while cautioning risks would become more two-sided in the future. Chair Jerome Powell is due to speak on Thursday.
ECB centre stage
Monetary policy has tightened further with rate hikes in Canada and Australia this week. The European Central Bank takes centre stage later on Thursday – Bloomberg Economics predicts a 75 basis points increase to front-load tightening even as the region grapples with an energy crisis.
The Fed’s Beige Book report said US economic expansion prospects were weak and set to slump further over the next year, while adding that price growth showed signs of decelerating.
“What’s clear to us is that the Fed continues to emphasise that they are not done until they see inflation coming back toward that 2% target,” Nadia Lovell, UBS Global Wealth Management’s senior US equity strategist, said on Bloomberg Radio. BM