On Monday, Asian stock markets were muted and the dollar held steady as a surprising U.S. payrolls report dispelled recession rumours while also supporting the need for additional massive rate hikes.
The two-year yield increased by 20 basis points on Friday as markets rapidly moved to price in a 70 percent likelihood that the Federal Reserve will raise rates by 75 basis points in September. This further inverted the yield curve.
The game-changing figures only increased the stakes for next Wednesday’s release of the July consumer price index in the United States, which may show a little slowdown in headline growth but a likely escalation in core inflation.
Abiding with what was revealed by the head of economic analysis at JPMorgan, Bruce Kasman, the Fed will most likely boost policy rates by 75 basis points at its September meeting, despite weak growth and an anticipated decline to a July CPI gain of 0.2 percent m/m.
The crucial question, he continued, is whether the organisation will conclude that a significant increase in the rate of unemployment is required to accomplish its goals. If this is the case, the company’s rate outlook would change dramatically and it will also likely signal that it will be less vulnerable to short-term growth disappointments.
S&P 500 futures & Nasdaq futures both fell by 0.1 percent as a result of the risk that plagued the equity markets.
After three days of increases, MSCI’s largest index of Asia-Pacific shares outside of Japan (.MIAPJ0000PUS) fell 0.5 percent. South Korean KOSPI (.KS11) declined by zero percent while Japan’s Nikkei (.N225) grew by 0.3 percent. Blue-chip stocks in China (.CSI300) decreased by 0.2%.
FTSE futures increased by 0.3 percent, while EUROSTOXX 50 futures performed better and advanced 0.5 percent.
The news that the US Senate on Sunday enacted a massive $430 billion bill to address global warming after some concessions on taxation inside the accord had a little immediate market reaction.
Goldman Sachs analysts say that the adjustments are unlikely to significantly alter the legislation’s net fiscal impact, which will likely remain less than 0.1 percent of GDP for the foreseeable future. This is because increased spending plus new taxes would nearly balance each other out.
At 3.25 percent, two-year Treasury yields are now 40 basis points higher than 10-year yields.
Due to anxiety over Beijing’s sabre-rattling towards Taiwan as China executes four-day military drills outside the island, bonds also received a safe-haven offer.
Chinese data released over the weekend indicated imports lagged behind with a gain of just 2.3 percent while exports unexpectedly increased in July with a jump of 18 percent.
The increase in rates and the jobs boom helped to support the U.S. dollar, which was up versus a group of currencies at 106.640 after rising 0.8 percent on Friday.
Alan Ruskin, global director of G10 FX strategies at Deutsche Bank, commented that this important data point is extremely far from a present recession, both in terms of employment changes and levels of unemployment.
Such information is particularly supportive of the idea of “U.S. exceptionalism” and is good for the USD relative to all other currencies.
The euro was battling at $1.0182 and close to chart support near $1.0095, while the dollar maintained at 135.27 yen after rising 1.6 percent on Friday.
The announcement that Moody had changed Italy’s outlook from stable to negative as a result of PM Mario Draghi’s departure did not benefit the single currency.
Gold suffered from the increase in the dollar, although have managed to recover from its Friday lows to stand at $1,773.
After suffering their lowest week since April due to concerns over stalled global demand as a result of central banks’ continued tightening, oil prices managed to recover early losses to post some gains.
U.S. crude increased 19 cents to $89.20 a barrel, while Brent gained 25 cents to $95.17.