Europe Futures, Asia Stocks Rise as Calm Returns: Markets Wrap
- The dollar inches higher, on couse to end a three-day drop
- Trades see the Fed’s benchmark rate at around 4% year-end
A mildly positive tone for risk taking took hold in European equity futures and Asian share markets Tuesday as immediate concerns over the strength of the global financial system dissipated.
Contracts for the Euro Stoxx 50 climbed as much as 0.9%. A benchmark of Asian stocks gained about 0.7% amid gains in Hong Kong, South Korea and Australia. Most sectors rose in the region, with the MSCI Asia Pacific Financials Index adding 0.6% after sliding to the lowest since November on Monday.
Supporting sentiment was a rebound in Additional Tier 1 bonds sold by banks in the Asia-Pacific region. The market for this risky debt had seized up on Monday when the rescue of Credit Suisse Group AG wiped out of its AT1 bonds.
Futures for the S&P 500 rose slightly following a jump of 0.9% Monday in the underlying index. Earlier, news that US officials were studying ways to temporarily guarantee all bank deposits if the current financial crisis expands sent contracts for the S&P 500 and the Nasdaq 100 to their intraday highs.
The dollar ticked higher and was set to end a three-day losing streak, which sent a measure of the greenback’s strength to a month-low on Monday. That came as expectations grew that the Federal Reserve may adopt a more cautious policy approach when it decides on interest rates Wednesday.
Government bond yields were lower in Australia and New Zealand after Treasuries whipsawed through the global trading day on Monday. Board minutes showing that Australia’s central bank would consider a pause in rate hikes next month weighed on the nation’s yields and the Australian dollar.
The policy-sensitive two-year US Treasury yield ended Monday 14 basis points higher and just below 4%. There was no trading of cash Treasuries in Asia hours Tuesday with a holiday in Japan.
Investors are closely monitoring the Fed’s meeting and have increased bets on a quarter-point hike as the recent financial turmoil has spurred speculation on a slower pace of tightening from major central banks worldwide.
Strategists at Singapore’s Oversea-Chinese Banking Corp. expect to see a 25-basis-point increase on Wednesday rather than a pause. “We doubt the Fed wants to send the ‘overly-cautious’ signal to markets as the key now is to restore market confidence,” Frances Cheung and Christopher Wong wrote in a note.
Just a couple of weeks ago, investors were betting the Fed would raise rates close to 6% and that the European Central Bank would hike past 4%. Now markets imply the tightening cycles are almost over and wager on multiple rate cuts in the US by year-end.