By mid-morning, MSCI’s broadest index of stocks in the Asia-Pacific region outside Japan was down 0.4%, while Japan’s Nikkei stock index was up nearly 1%, in part. thanks to another blow of weakness in the Japanese yen.
Wall stock indices fell on Monday, but the pace of selling slowed and US stock futures held steady in Asia.
Besides interest rates, the health of the Chinese economy is also at the forefront of investors’ concerns. China’s benchmark Shanghai Composite lost 0.4% in early trading.
Hong Kong’s Hang Seng index fell 1.8% as investors began to scale back their enthusiasm over a deal reached between China and the United States for access to Chinese companies’ audit documents .
At the Jackson Hole conference last week, Federal Reserve Chairman Jerome Powell and European Central Bank speakers struck a hawkish tone, prompting bond and stock sales as traders increased expectations for short-term interest rates.
“For the next two weeks at least, the markets will focus on the likely Fed action,” said Manishi Raychaudhuri, head of APAC equity research at BNP Paribas.
“Earlier there was talk of a pivot of a possible interest rate cut by the Fed, possibly in the second half of 2023, but that is now falling apart,” he said. he says.
“A longer-term higher interest rate is perhaps the kind of scenario that is unfolding,” he added.
Futures markets have a more than two-thirds chance that the ECB will raise rates by 75 basis points in September, and see around a 70% chance that the Fed will do the same.
Data on US non-farm payrolls is due Friday, and markets may not appreciate a strong figure if it supports the basis for continued aggressive interest rate hikes.
US Treasury bonds fell Tuesday morning. The two-year yield fell to 3.4293%, after hitting 3.489% on Monday, its highest level since late 2007.
Benchmark 10-year yields also fell to 3.0949% from 3.13% on Monday.
The US dollar stabilized after an overnight dip, although the euro has already struggled to hold on to small gains on bets on the ECB hike and cooling gas prices. [FRX/]
The dollar index, which measures the value of the currency against a basket of peers, rose 0.2% to 108.85, not far from the peak of 109.48 hit a day earlier and dating back two decades. The dollar traded at 0.9987 dollars per euro and bought 138.59 yen.
Oil mostly held on to its gains on the prospect of production cuts, as traders await a producers’ meeting on Sept. 5. US crude lost about 30 cents a barrel to $96.68 and Brent crude lost 68 cents to $104.41.
Gold was down slightly. Spot gold was trading at $1,735.95 per ounce.