Asia goes into the red, the yuan slips on a strong dollar


SYDNEY (Reuters) – Asian stocks slid on Monday and the dollar extended its climb amid global growth angst as most major banks continue to hike rates, while a slight easing in the part of China has only highlighted the problems in its real estate market.

Federal Reserve Chairman Jerome Powell headlines a crowd of policymakers in Jackson Hole later in the week and the risks are that he will fall short of investors’ hopes of a dovish pivot on policy .

“We expect a reminder that further tightening is needed and that there is still a lot of room for improvement on inflation, but no explicit commitment to specific rate hike action for September,” Jan Nevruzi said. , analyst at NatWest Markets.

“For the markets, a bland delivery like this could be disappointing.”

Futures are fully priced for another rise in September, the only question being whether it will be one of the 50 or 75 basis points, while rates are seen higher, to 3.5 % to 3.75% by the end of the year.

A Reuters poll of economists predicts the Fed will raise rates by 50 basis points in September, with risks pointing to a higher peak.

One exception to the tightening trend is China, where the central bank slashed some policy rates by 5 to 15 basis points on Monday in a bid to prop up a slowing economy and struggling real estate sector.

Unease over the Chinese economy sent the yuan to a 23-month low, while putting pressure on stocks across the region.

MSCI’s broadest index of Asia-Pacific stocks outside Japan fell another 0.7%, while Chinese blue chips fell 0.1%.

The South Korean KOSPI lost 0.7% while the Japanese Nikkei fell 0.6%, although it benefited from the recent sharp reversal in the yen.

EUROSTOXX 50 futures lost 0.3%, while FTSE futures fell a fraction.

S&P 500 futures fell 0.4% and Nasdaq futures fell 0.5%. The S&P 500 repeatedly failed to clear its 200-day moving average around 4,320 and ended last week down 1.2%.

BofA’s latest survey of investors found most were still bearish, although 88% expected inflation to fall over time, the highest proportion since the financial crisis.

“This helps explain this month’s rotation into equities, technology and stealth, and out of defensives,” said BofA strategist Michael Hartnett. “Compared to history, investors are still long defensive and short cyclical.”

He remained a cautious bear given rising interest rates and recommended continued S&P rallies above 4,328.

Equity valuations were not helped by a sharp rise in global bond yields last week. UK 10-year yields climbed the most in five years following a shock inflation report, while Bund yields jumped on a dizzying rise in German producer prices.

Ten-year Treasury yields rose 14 basis points over the week and last stood at 2.99%, while the curve remained deeply inverted to reflect recession risk. [US/]

The general atmosphere of global uncertainty tended to make the US dollar the most liquid safe haven, leaving it at 108.22 on a basket of currencies. It jumped 2.3% last week in its best performance since April 2020. [USD/]

“The USD may rise above 110.00 this week if flash August PMIs for major economies show further slowing in economic growth or contraction in activity,” said Joseph Capurso, head of international economics. to the CBA, referring to the manufacturing sector surveys scheduled for Tuesday. .

“We also expect Powell to deliver a hawkish message on inflation, consistent with recent comments from other USD-supportive Fed officials.”

The dollar was firm at 137.27 yen, having jumped 2.5% last week, while the euro was struggling at $1.0028 after losing 2.2% last week.

Minutes from the European Central Bank’s latest policy meeting are due out this week and should look hawkish given that it decided to hike 50 basis points.

The rising dollar was a setback for gold, which was pinned at $1,746 an ounce. [GOL/]

Oil prices were also under pressure, amid concerns about global demand and the high value of the dollar. [O/R]

Brent fell $1.23 to $95.49, while U.S. crude fell 99 cents to $89.78 a barrel.

(Reporting by Wayne Cole; Editing by Shri Navaratnam and Clarence Fernandez)

Copyright 2022 Thomson Reuters.


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