European, US Futures Edge Down; Asia Stocks Mixed:
- Dollar and Treasury yields remain elevated on Fed hike bets
- Powell softens his tone slightly in second day of testimony
European and US equity futures inched lower Thursday while the picture across Asian stock markets was mixed as investors weighed the risk of faster rate hikes.
Shares rose about 1% in Japan, swung from gains to losses in South Korea, crept into positive territory in Hong Kong and were little changed in Australia. The dollar fell slightly while holding within sight of its high for the year and Treasury yields remained elevated, though fractionally lower than Wednesday.
Contracts for the S&P 500 and Nasdaq 100 dipped to intra-session lows following a report that President Joe Biden was proposing tax increases on wealthy investors but the securities retraced the moves on recognition that the US leader has little chance of getting his plans through Congress.
Softer-than-expected Chinese consumer and producer price figures were seen as positive for the global fight to contain inflation but negative in terms of helping fuel economic growth around the world.
Investors continue to digest Jerome Powell’s signaling on further rate hikes and the risk of recession that comes with this. While the Federal Reserve chief told lawmakers Wednesday that no decision had been made on the pace of the next move, he reiterated that an acceleration in tightening was still on the table and rates may go higher than anticipated should economic data warrant.
The comments coincided with another round of US jobs figures that came in on the hot side, bolstering bets that policymakers will remain hawkish.
Japan’s benchmark 10-year bond yield hovered at the 0.5% ceiling set by the Bank of Japan amid pressure on the yield-curve control program, and as Governor Haruhiko Kuroda began his last two-day policy meeting.
The yen strengthened about 0.4% against the dollar after three days of losses. On Wednesday it touched the weakest level since November.
While economists expect little change from the BOJ at the current meeting, traders are on guard given Kuroda’s history of springing surprises.
The offshore yuan weakened slightly while remaining short of the 7 level versus the dollar after China’s report of a slowdown in consumer inflation and a drop in factory prices.
Treasuries rose fractionally in Asia, with the two-year yield ticking down to 5.06%. On Wednesday, yields on shorter-term notes continued to rise faster than longer-maturity peers, with the inversion between the 2- and 10-year yields reaching more than 110 basis points. Wagers solidly tilted toward a half-point move in March rather than a quarter-point.
Friday’s jobs report will be scrutinized for hints on the outlook for Fed policy, with even just slightly stronger-than-forecast figures likely to trigger more bets for a bigger hike.
Carol Schleif at BMO Family Office said that with so much focus on the jobs market and its implications for this month’s Fed decision, some investors were overlooking part of the big picture.
“It’s keeping the focus so short-term,” she said on Bloomberg Television. “We’re missing the intermediate and longer-term strength in the economy.”
Elsewhere in markets, oil held losses on expectations for higher interest rates, despite an unexpected decline in US crude inventories.
Iron ore slid amid uncertainty about potential moves by Chinese authorities to implement price controls, and as some furnaces ramped up output of steel that uses scrap metal rather than freshly-shipped product.
Gold held near its lowest price this year.