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Dollar rally pauses, stocks mixed in relative calm: markets wrap

Dollar rally pauses, stocks mixed in relative calm: markets wrap
Stacks of uncut sheets of $1 notes sit in a machine at the US Bureau of Engraving and Printing in Washington, DC, on Wednesday, 15 November 2017. (Photo: Andrew Harrer/Bloomberg)

Asian markets traded on a cautious note on Tuesday after another selloff in US stocks, soaring bond yields and volatile currency markets as investors brace for a heightened risk of global recession.

A gauge of the region’s equities held a slight gain as shares edged higher in Japan and Australia and were mixed in Hong Kong and China. US equity contracts rose after the S&P 500 closed at its lowest since 2020 and the Cboe Volatility Index spiked past 30, a level it hasn’t closed above since June. 

Bonds remained under pressure in Australia and Japan, while the benchmark 10-year Treasury yield held near 3.9% – a level last seen in 2010.

The Bank of Japan announced an unscheduled bond buying operation across a wide range of maturities after the country’s 20-year bond yields rose to the highest level since 2015 as global debt markets come under pressure from expectations for further monetary tightening.

The dollar gauge inched back from a record high on Monday, when Federal Reserve officials repeated hawkish comments on policy. Asian currencies including the yen and yuan strengthened slightly while staying around levels that have caused concern from authorities in Japan and China.

BOJ governor Haruhiko Kuroda said on Monday that Japan’s intervention in the currency market was appropriate given recent volatility in the yen. Japan spent about 3 trillion yen ($21 billion) on its action, Nikkei reported. 

Traders are also looking for more pushback from China’s central bank as the yuan approaches the lowest level in 14 years.

“The yuan I think is getting close to its bottom,” Daniel Gerard, senior multi-asset strategist at State Street Global Markets, said on Bloomberg Television. “They’ve got to manage the trading basket.”

The pound made a small advance following its drop to a record low Monday. The Bank of England said it may not act before November to stem a rout, leaving traders wary of the risk that the currency could drop to parity with the dollar.  

The turmoil in markets shows little sign of turning Fed officials away from hawkish rhetoric. Boston Fed president Susan Collins and her Cleveland counterpart Loretta Mester said additional tightening is needed to rein in stubbornly high inflation and Atlanta Fed president Raphael Bostic also said the central bank still has a ways to go to control inflation.

“The market is pricing in some Fed increases, but we’re a bit worried that it might not be pricing in everything,” Laila Pence, president of Pence Wealth Management, said on Bloomberg Television. “We got whipsawed in August when inflation was up not down – everyone is nervous.”

Negative sentiment is also flowing into markets for energy and raw materials. West Texas Intermediate crude oil traded around $77 a barrel near its January lows. BM


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