Dollar extends gains as crude oil rallies further: markets wrap
The greenback rose for a second day as a rally in oil reignited concerns over inflation, putting pressure on policymakers to keep rates high.
A gauge of dollar strength climbed to the highest since March on the back of elevated Treasury yields, which pushed up across tenors as at least 40 businesses tapped high-grade markets around the world on Tuesday. About half of the corporate deals — or over $36-billion of new bonds — were sold in the US.
The greenback strengthened against most major peers and prompted Japan’s top currency official Masato Kanda to say on Wednesday he wouldn’t rule out any options if currency moves continue. The Japanese currency strengthened following the comment, but has since pared its gain.
“The dollar’s strength is likely to continue as the US economy remains resilient and inflation stays above the Fed’s target high for a longer period,” said Tsutomu Soma, a bond and currency trader at Monex in Tokyo.
The Chinese central bank also moved on Wednesday with another strongest daily yuan fixing on record. Still, the currency extended its drop against the US currency into a third day.
Meanwhile, West Texas Intermediate held near the highest since November and Brent stayed past above $90 a barrel — after breaching the level on Tuesday — as the largest OPEC+ producers extended their supply cuts to year-end. Oil’s recent gains pose a headwind for much of Asia, threatening economic growth and risk keeping interest rates high.
Asian stocks traded mixed, with benchmark indexes falling in Hong Kong and mainland China, but rising in Japan for an eighth day. Chinese property developers gained, with Sunac China Holdings up as much as 34%, after Securities Times in a front-page commentary called for more cities to drop home-buying restrictions.
US equities edged lower following the decline in the S&P 500 to below 4,500 in the previous session while an index of small caps slid about 2% and a gauge of homebuilders sank 5.5%.
Traders will be monitoring consumer price index figures in Taiwan later on Wednesday. More broadly, they are also looking to this month’s key economic data from the US and clues as to the Federal Reserve’s next rate decision.
Fed Governor Christopher Waller said policymakers can afford to “proceed carefully” with tightening given recent data showing inflation continuing to ease. “There is nothing that is saying we need to do anything imminent anytime soon,” Waller told CNBC. Meantime, Fed Bank of Cleveland President Loretta Mester said the central bank may need to raise rates “a bit higher,” but stopped short of saying what officials should do at their next meeting.
“This higher-for-longer interest rate environment is going to last,” Eric Lynch, managing director at Scharf Investments, said on Bloomberg Television. “The only way to kind of crack this core inflation above 4%, and now we’ve got oil coming back, is to continue slowing down the economy.”
JPMorgan Chase & Co’s Marko Kolanovic reiterated on Tuesday that investors should fade the artificial-intelligence induced stock-market rally, arguing that he would turn more optimistic on equities if interest rates begin falling globally in the near term. Meanwhile, Morgan Stanley’s Michael Wilson said US equity investors are in for disappointment as economic growth is set to be weaker than expected this year.
Elsewhere, gold was little changed after declining the most in more than a month in the previous session. DM