Fed Views Boost Yields, Dollar as Haven Bid Ebbs: Markets Wrap

(Bloomberg) -- Stocks in Asia look set for a steadier session Wednesday as anxiety over US-China tension eases a little, though a surge in bond yields and the dollar on hawkish Federal Reserve views may keep the mood cautious.

Futures pointed to muted opens in Japan and Australia and the prospect of Hong Kong unwinding some of the losses sparked by worries over US House Speaker Nancy Pelosi’s visit to Taiwan. S&P 500 and Nasdaq 100 contracts fluctuated after a dip in Wall Street shares on Tuesday.

Treasuries slid overnight, pushing the two-year yield back past 3%. A chorus of Fed officials said the central bank has some way to go to get high inflation under control, leading traders to trim wagers on policy easing next year.

A dollar gauge added to its biggest gain in about three weeks. Ebbing demand for havens from geopolitical risk pushed the yen lower.

The comments from Fed officials including Mary Daly, Loretta Mester and Charles Evans served to highlight the challenging backdrop of rising borrowing costs, price pressures and slowing economic growth confronting markets.

San Francisco Fed President Daly said the Fed has “a long way to go” on reaching price stability around a 2% inflation target. Cleveland counterpart Mester said she wants to see “very compelling evidence” that month-to-month price increases are moderating.

“It’s hard to see any meaningful upside in equities right now,” Xi Qiao, managing director for global wealth management at UBS Group AG, said on Bloomberg Television. “The market is going to trade pretty mixed, stay choppy until we have a little bit more certainty.”

Missile Tests

China, which regards Taiwan as part of its territory, announced missile tests and military drills around the island after Pelosi became the highest-ranking American politician to visit in 25 years.

While market fears of an acute deterioration in ties between the US and China appear to have cooled, the ill-will highlights the risk of longer term economic decoupling with an array of potential impacts, such as stickier inflation as supply chains adjust.

China’s Contemporary Amperex Technology Co. Ltd., the world’s biggest maker of batteries for electric vehicles, decided to push back announcing a multibillion-dollar North American plant to supply Tesla Inc. and Ford Motor Co. due to tensions raised by Pelosi’s trip to Taiwan, according to people familiar with the matter.

Elsewhere, oil fell below $94 a barrel as traders counted down to an OPEC+ crude production meeting. Gold held a retreat and Bitcoin oscillated around $23,000.

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What to watch this week:

OPEC+ meeting on output, Wednesday
US factory orders, durable goods, ISM services, Wednesday
BOE rate decision, Thursday
US initial jobless claims, trade, Thursday
Cleveland Fed President Loretta Mester due to speak, Thursday
US employment report for July, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 8:22 a.m. in Tokyo. The S&P 500 fell 0.7%
Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.3%
Nikkei 225 futures rose 0.3%
S&P/ASX 200 futures shed 0.2%
Hang Seng futures added 1.1%

Currencies

The Bloomberg Dollar Spot Index rose 0.1%
The euro was at $1.0161
The Japanese yen was at 133.34 per dollar, down 0.1%
The offshore yuan was at 6.7765 per dollar

Bonds

The yield on 10-year Treasuries advanced 18 basis points to 2.75%
Australia’s 10-year yield increased 13 basis points to 3.11%

Commodities

West Texas Intermediate crude was at $93.88 a barrel, down 0.6%
Gold was at $1,758.43 an ounce, down 0.1%

More stories like this are available on bloomberg.com

Author: Sunil Jagtiani