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Dollar rallies, stocks drop in rocky start to week: markets wrap

Dollar rallies, stocks drop in rocky start to week: markets wrap
The Exchange Square Complex, which houses the Hong Kong Stock Exchange, in Hong Kong, China, on Wednesday, 13 July 2022.

The dollar rallied, bond yields climbed and Asian shares slid amid unrelenting pressure on risk-sensitive assets as fears of faster inflation and global recession continued to rise. 

The pound led declines among major currencies on Monday, slumping to a record low as the UK Chancellor vowed to press on with tax cuts that threaten to stoke inflation. The euro fell as investors weighed the prospects of Italy under the most right-wing government since World War 2. 

Shares dropped in Japan and Australia while an index of global stocks plumbed new lows for the year. US and European stock futures fell. Hong Kong equities fluctuated.

“We’re in a period of global gloom, with pessimism blanketing different countries for different reasons,” said Ed Yardeni, president of his eponymous research firm, who warned of growing storm clouds for the US economy. “The latest data jibe with our growth recession scenario, but the risks of a full-blown recession are obviously increasing,” he wrote in a note Monday.

A dollar gauge rose to a record high. The yen slid, while remaining short of the point last week that drew intervention from Japanese authorities. 

The yuan slid as China set its reference for the currency weaker than 7 per dollar for the first time in two years, while increasing the risk reserve requirement on foreign exchange sales.

The depreciation of the Korean won also continued, prompting the central bank to warn of its impact in exacerbating inflationary pressures. 

“It’s a king US dollar – we’ve been seeing currencies across Asia come under pressure,” Sian Fenner, senior Asia economist for Oxford Economics, said on Bloomberg TV. “It’s adding to inflationary pressures and more central banks raising rates more than we have historically seen.”

Treasury yields remain elevated, with the two-year US rate climbing for 13 consecutive days through Friday in the longest such streak since at least 1976. Australia’s sovereign bond yields advanced, led by the policy-sensitive three-year note.

The Bank of Japan boosted its bond purchase amounts at its regular operation as the benchmark 10-year yield rebounded toward the upper end of the central bank’s tolerated trading range. 

Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week.

Underscoring the concern in markets, the Cboe Volatility Index, which serves as a “fear gauge” for Wall Street, jumped to a three-month high on Friday. Adding to the bleak outlook, Goldman Sachs Group slashed its target for US stocks at the end of last week, warning a dramatic upward shift in the outlook for rates will weigh on valuations.

Oil held below near $79 a barrel amid heightened fears over a hard economic landing. Gold was little changed and Bitcoin stayed below $19,000. 

Key events this week:

  • Fed officials Susan Collins, Raphael Bostic, Loretta Mester speak at events, Monday
  • ECB president Christine Lagarde at the European Parliament, Monday
  • China industrial profits, Tuesday
  • US new home sales, Conference Board consumer confidence, durable goods, Tuesday
  • Fed chair Jerome Powell and Charles Evans speak at events, Tuesday
  • Fed’s Mary Daly, Rafael Bostic, Charles Evans and ECB president Christine Lagarde speak at events, Wednesday
  • Eurozone economic confidence, consumer confidence, Germany CPI, Thursday
  • US initial jobless claims, GDP, Thursday
  • Fed’s Loretta Mester, Mary Daly speak at events, Thursday
  • China PMI, Friday
  • Eurozone CPI, unemployment, Friday
  • US consumer income, University of Michigan consumer sentiment, Friday
  • Fed’s Lael Brainard and John Williams speak, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures dropped 0.5% as of 10:41am in Tokyo. The S&P 500 fell 1.7% on Friday
  • Nasdaq 100 futures fell 0.4%. The Nasdaq 100 dropped 1.7%
  • The Topix index dropped 2%
  • Australia’s S&P/ASX 200 Index slipped 1.9%
  • South Korea’s Kospi declined 2.5%
  • The Hang Seng Index fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.6%
  • The euro dropped 0.4% to $0.9654
  • The yen fell 0.3% to 143.81 per dollar
  • The pound fell 2.8% to $1.0555
  • The offshore yuan was at 7.1513 per dollar

Cryptocurrencies

  • Bitcoin traded at $18,895.13
  • Ether gained 0.4% to $1,305.45

Bonds

  • The yield on 10-year Treasuries rose four basis points to 3.72%
  • Australia’s 10-year yield rose three basis points to 3.94%

Commodities

  • West Texas Intermediate crude rose 0.2% to $78.89 a barrel
  • Gold traded at $1,640.31 an ounce
Gallery

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