People enter a subway in front of an Apple advert in Shanghai, China, on 9 July 2021. Gains in Apple, Microsoft, Nvidia, Alphabet, Amazon.com, Meta Platforms and Tesla have powered the resurgence on Wall Street. (Photo: EPA-EFE / Alex Plavevski) Equities were lower from Hong Kong to mainland China and Australia. That followed a third daily decline for the S&P 500, its longest stretch of losses since October. US futures were mostly steady.
Ten-year Treasury yields drifted higher after Wednesday’s decline that had pushed them to 4.1%, the lowest since August. The policy-sensitive two-year yield also edged up slightly. Australian bond yields were a touch lower.
Driving the weakness in equities were declines in energy producers after oil fell to its lowest since June on concerns about oversupply, as well as worries over China’s debt burden after Moody’s Investors Service cut ratings on a number of local companies following a downgrade of the nation’s sovereign bonds.
Investors will assess fresh trade data from China due on Thursday that will shed fresh light on the state of the world’s second-largest economy. The focus is also on Friday’s US jobs report after private payrolls data that fell short of estimates in a sign of softening in the employment market.
“The slowdown in hiring continues and is becoming more obvious,” said Peter Boockvar, author of the Boock Report. “What I’m mostly focused on right now is the trajectory of activity — and all I see is slowing in multiple places, including now the labor market.”
Oil steadied after a five-day run of losses on signs that global supplies are eclipsing demand despite plans by OPEC+ to rein in its production into 2024. A key gauge for prices of raw materials earlier tumbled to the lowest level since August 2021.
An index of the dollar steadied on Thursday after reaching its highest in three weeks. Currencies were otherwise muted during Asian trading hours.
Fed legislators meet next week for the last time in 2023. While no change is expected in their target for the federal funds rate, they are scheduled to release quarterly forecasts that could alter market-implied expectations. Those bets have been gravitating toward more easing next year in response to weaker-than-forecast economic data.
Markets fully priced six quarter-point rate cuts by the European Central Bank in 2024 earlier on Wednesday, a move that would take the key rate to 2.5%. Although bets were pared slightly later in the day, Deutsche Bank AG helped stoke the dovish sentiment by revising its outlook to also forecast 150 basis points of cuts.
“Inflation fears are melting,” said Prashant Newnaha, a rates strategist at TD Securities. “Central banks believe they have clearly done enough and may need to cut, otherwise real rates may be too high and restrictive.”
Hedge fund warnings
Meanwhile, the Bank of England stepped up warnings about hedge funds shorting US Treasury futures, saying its measure of the net position is now larger than before the “dash for cash” crisis in March 2020.
The net short position has grown to $800-billion from about $650-billion in July, the central bank said, citing calculations based on Commodity Futures Trading Commission data. That suggests a jump in the so-called basis trade, which is where investors seek to exploit price differences between futures and bonds.
In corporate news, Apple, seeking to reverse a decline in Mac and iPad sales, is preparing several new models and upgrades for early next year, according to people familiar with the situation. Advanced Micro Devices Inc., meanwhile, is taking aim at a burgeoning market dominated by Nvidia Corp. by unveiling new so-called accelerator chips targeting the artificial intelligence boom.
Elsewhere, gold extended Wednesday’s gains, while bitcoin traded just below $44,000, a level not seen since June last year.