After a top U.S. central banker cautioned investors against getting overexcited over a single data point indicating signs of victory in the battle against inflation, equities steadied and bond rates stayed close to multi-year highs on Monday.
The dollar lost about 4% over the course of the week and two-year Treasury yields fell 33 basis points, which was the fourth-largest weekly loss since the era of freely floating rates of exchange began more than 50 years ago.
The Federal Reserve, however, did not wholly embrace the resulting easing in U.S. financial conditions, with Governor Christopher Waller stating on Sunday that it would take a spate of positive news for the bank to let up on the brakes.
Waller said the Fed could now begin to consider raising rates at a slower rate, but he added that the markets were far ahead of themselves based on just one inflation print.
Futures are significantly betting on a half-point increase in interest rates to 4.25–4.5% in December, followed by a couple of quarter-point movements to a peak in the 4.75–5.0% range.
Two-year rates decreased somewhat to 4.39% on Monday after plummeting to 4.29% on Friday.
Germany’s 2-year bracket government bond yield, which is more susceptible to changes in policy rates than other maturities, dropped 1.5 basis points (bps) to 2.11% this week after peaking last week at 2.252%, its highest level since December 2008.
According to Bruce Kasman, head of economic analysis at JPMorgan, the CPI negative surprise fits with a wide variety of signs pointing to a downturn in global inflation, which should promote a slowing in the pace of monetary policy strengthening at the Fed and elsewhere.
These encouraging signs, he continued, need to be balanced by the knowledge that further tightening is probably in the works and that a decrease in inflation will not be sufficient for central banks to declare their goals achieved.
The MSCI’s broadest index of Asia-Pacific shares outside of Japan (.MIAPJ0000PUS) increased 0.5% after rising 7.7% the previous week, while the benchmark European STOXX index increased by 0.15% (.STOXX).
S&P E-mini futures were down 0.44%, suggesting that U.S. markets would open lower.
Chinese markets rose following news that regulators had requested financial institutions provide distressed real estate developers greater help.
In response, China’s real estate index (.CSI000952) increased by 3.5%. Blue chips (.CSI300) increased 0.2% despite China reporting more instances over the weekend because of several adjustments to COVID limits.
From an economic perspective, it’s difficult to see how the case news could be anything but bad, but markets are gleefully seizing onto the symbolism of the change, however minor, in the zero COVID goal, as per Ray Attrill, director of FX strategy at the NAB.
Meanwhile, After losing almost 22% last week, Bitcoin increased 2.9% to $16,788. However, FTX’s native token, FTT, was last down 2.4% at $1.38, bringing its month-to-date deficits to roughly 95%.
Following Governor Waller’s involvement over the weekend, the greenback held steady despite dwindling hopes for a less drastic Federal Reserve interest rate increase.
The dollar index was last observed on Monday at 107.15, still far below the record high of 111.280 reached last week, while the euro slipped slightly to $1.02875 following a 3.9% increase last week.
Prior to the British finance minister’s upcoming Autumn Statement on Thursday, in which he is expected to propose tax increases and spending reductions, the pound slipped down to $1.1766.
Oil prices fell as a result of the strengthening currency as well, amid expectations that China’s hints at reopening would increase demand.
After closing up 1.1% on Friday, Brent crude futures rdropped 52 cents, or around 0.59%, at $95.42 per barrel by 1128 GMT.