(Bloomberg) — The US dollar climbed to a one-month high as Treasury yields rose and Asia equities declined after hawkish European Central Bank comments pushed back against bets on early and extensive rate cuts.
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The MSCI Asia Pacific Index slid 1.2%, the first decline in four sessions, with Hang Seng Index set for the worst day in three months as property-sector funding plans hurt bank shares. European stock-index futures fell, extending a decline in the prior session, while US futures also traded in the red.
Gold headed lower, with Treasuries declining across the curve in the first trading day since Friday. 10-year yields and the policy-sensitive 2-year debt advanced around six basis points each. Traders now look to Federal Reserve Governor Christopher Waller’s speech later Tuesday on whether there will be more push back against wagers of a rate cut in March.
“It’s probably too soon to position for the next leg down move in yields just yet,” said Amy Xie Patrick, head of income strategies at Pendal Group. Over the longer term, say six months or more, she is confident yields are headed lower, but the immediate outlook is less certain.
ECB Governing Council member Robert Holzmann indicated cuts this year were not assured given lingering inflation and geopolitical risks, in Monday comments. The sentiments echo prior comments from ECB President Christine Lagarde warning that it’s too early to talk about trimming borrowing costs.
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Oil prices were steady as continued Houthi attacks on ships in the Red Sea that are keeping tensions high in the Middle East were offset by a shaky global economic outlook and gains in the dollar. Global benchmark Brent held above $78 a barrel, while West Texas Intermediate traded below $73.
“We are seeing consolidation across Asia markets as the potential escalation in geopolitical conflicts in the Red Sea is driving EM risk-off sentiment,” said Marvin Chen, an analyst at Bloomberg Intelligence. “For China, there is also lack of catalysts in the near term as the PBOC skipped an opportunity to reduce interest rates, with GDP and macro data on deck tomorrow.”
China is set to publish data showing improvements in gross domestic product, industrial production and retail sales Wednesday, helped by a low base of comparison when pandemic restrictions hampered economic activity.
China Funding Support
Meanwhile, Ping An Bank Co. has put 41 firms on a list of developers eligible for its funding support, according to people familiar with the matter, the latest move in a widening rescue campaign for China’s ailing property sector.
The nation’s $1.24 trillion sovereign wealth fund has also vowed to help with risk mitigation and market stabilization in 2024, the latest sign of state companies playing a bigger role in bolstering China’s beaten-down stock market. Some investors are also turning bullish too.
Bell Asset Management Ltd., a long-time bear, is now scouring the market as stocks are “just so cheap,” while Abrdn Plc is looking to gain exposure via options.
“We were neutral for the last three quarters but we are now starting to see value,” said Louis Luo, head of multi-asset investment solutions for Greater China at Abrdn.
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Some key events in markets this week:
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Germany CPI, ZEW survey expectations, Tuesday
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UK unemployment, Tuesday
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US Empire Manufacturing, Tuesday
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Goldman Sachs Group Inc., Morgan Stanley to report earnings, Tuesday
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Federal Reserve Governor Christopher Waller speaks, Tuesday
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China GDP, property prices, retail sales and industrial production, Wednesday
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Eurozone CPI, Wednesday
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UK CPI, Wednesday
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US retail sales, industrial production, business inventories, Wednesday
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Federal Reserve issues Beige Book survey, Wednesday
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European Central Bank President Christine Lagarde speaks at Davos, Wednesday
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New York Fed President John Williams speaks, Wednesday
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Australia unemployment, Thursday
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Japan industrial production, Thursday
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European Central Bank publishes account of December policy meeting, Thursday
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US housing starts, initial jobless claims, Thursday
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Atlanta Fed President Raphael Bostic speaks, Thursday
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Japan CPI, Friday
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US existing home sales, University of Michigan consumer sentiment, Friday
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US Congress faces deadline to pass spending agreement before part of federal government shuts down, Friday
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San Francisco Fed President Mary Daly speaks, Friday
Here are some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.3% as of 2:34 p.m. Tokyo time
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Nikkei 225 futures (OSE) fell 1%
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Japan’s Topix fell 0.7%
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Hong Kong’s Hang Seng fell 2.1%
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The Shanghai Composite fell 0.7%
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Euro Stoxx 50 futures fell 0.5%
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Nasdaq 100 futures fell 0.5%
Currencies
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.3% to $1.0915
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The Japanese yen fell 0.3% to 146.19 per dollar
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The offshore yuan fell 0.1% to 7.1974 per dollar
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The Australian dollar fell 0.7% to $0.6614
Cryptocurrencies
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Bitcoin rose 0.4% to $42,871.71
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Ether rose 0.5% to $2,534.13
Bonds
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The yield on 10-year Treasuries advanced six basis points to 4.00%
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Japan’s 10-year yield advanced three basis points to 0.585%
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Australia’s 10-year yield advanced seven basis points to 4.15%
Commodities
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West Texas Intermediate crude fell 0.4% to $72.37 a barrel
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Spot gold fell 0.4% to $2,048.07 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi and Richard Henderson.
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