Asian shares are poised for a subdued opening on Tuesday as concerns about China’s property sector re-emerge. Wall Street closed higher and a US bond selloff extended into a fourth week, while a gauge of dollar strength hit its highest level this year.
Futures pointed to a positive start for stocks in Japan and Hong Kong, while Australia may open slightly down. Yields on Australian bonds rose early Tuesday, following Treasuries, as traders speculated central banks will keep interest rates elevated to quell inflation. The US 10-year yield climbed 11 basis points to above 4.54%, a level last seen in 2007.
Attention in Asia will be focused on fresh signs of turmoil for China’s property developers, after their stocks tumbled the most in nine months on Monday when China Evergrande Group missed a debt payment and former executives were detained. That added to fears about the sector’s debt pile and compounded concern that global growth will stall as the economic engine of the world’s second biggest economy sputters.
In currencies, Bloomberg’s Dollar Spot Index rose for a fourth day, reaching the highest since December, while the yen weakened to a fresh-year low after Bank of Japan officials doubled down on the message that stimulus is still needed.
The S&P 500 snapped a four-day slide, rising 0.4% as traders returned to their desks following the worst weekly selloff on Wall Street since March. The Nasdaq 100 ended the day 0.5% higher, with Amazon.com Inc. gaining 1.7% — the head of its cloud unit told Bloomberg Television he was seeing “huge demand” for chips used in AI. Netflix Inc. led film and TV producers higher after striking Hollywood screenwriters reached a tentative new labor agreement. Jefferies downgrades weighed on Foot Locker Inc. and Nike Inc. with the broker pointing to looming consumer headwinds.
A warning that a US government shutdown would reflect poorly on America’s credit rating from Moody’s Investors Service did little to shift market sentiment Monday. Concerns about a shutdown may intensify later this week as Oct. 1 draws near.
A shutdown could effect federally-produced data releases “and in turn Fed decision-making,” according to Michael Hanson, senior global economist at JPMorgan Chase & Co. “Disruptions to data releases that persist through to the Nov. 1 rate decision would lower the likelihood of a hike at that meeting.”
Still, after the salvo of central bank decisions last week, traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon. Hedge funds boosted exposure to oil on bets tightening supplies will stoke demand. West Texas Intermediate oil traded below $90 a barrel in the afternoon session.
“There are several reasons to believe that the full impact from tighter monetary policy is still yet to take effect,” said Henry Allen, a strategist with Deutsche Bank. “As such, it will be some months before we can sound the all clear for the economy, not least given longer-term interest rates are still reaching new highs even now.”
Fed Bank of Chicago head Austan Goolsbee said it’s still possible for the US to avoid a recession. “I’ve been calling that the golden path and I think it’s possible, but there are a lot of risks and the path is long and winding,” he said in a CNBC interview.
Two Fed officials last week said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required.
The surge in oil prices and massive fiscal deficit are spurring losses in government debt, sending Treasury yields across the maturity curve to the highest levels in more than a decade. The Treasury 10-year yield may rise to 4.75% before softer risk sentiment and tighter financial conditions push it lower into year-end, according to strategists at Bank of America Corp.
Key events this week:
- US new home sales, Conference Board consumer confidence, Tuesday
- ECB’s Philip Lane speaks on monetary policy, Tuesday
- China industrial profits, Wednesday
- US durable goods, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- US initial jobless claims, GDP, Thursday
- Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
- Eurozone CPI, Friday
- Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
- US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 8:33 a.m. Tokyo time. The S&P 500 rose 0.4%
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.5%
- Hang Seng futures rose 0.2%
- S&P/ASX 200 futures were little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0595
- The Japanese yen was little changed at 148.81 per dollar
- The offshore yuan was little changed at 7.3144 per dollar
- The Australian dollar was unchanged at $0.6424
Cryptocurrencies
- Bitcoin was little changed at $26,292.25
- Ether was little changed at $1,586.6
Bonds
- Australia’s 10-year yield advanced 11 basis points to 4.42%
Commodities
- West Texas Intermediate crude rose 0.1% to $89.78 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
