Image: Reuters Berita 24 English - Investors worried about an impending recession on Thursday as the euro huddled at a two-decade bottom an...
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| Image: Reuters |
Berita 24 English - Investors worried about an impending recession on Thursday as the euro huddled at a two-decade bottom and oil nursed losses. Equities were trapped between concerns about growth and comfort that a slowdown may halt interest rate increases.
MSCI's largest index of Asia-Pacific shares outside of Japan rose 0.3 percent in early trade, recovering from a two-month low. Nikkei in Japan increased by 0.7 percent. The dollars of Australia and New Zealand managed to recover from two-year lows.
The S&P 500 futures were unchanged. As traders struggled with generally encouraging U.S. economic data, robust job vacancies, and hawkish minutes from the June Federal Reserve meeting, the index increased overnight by 0.4 percent while Treasuries fell.
According to Mizuho economist Vishnu Varathan, "the confluence of pretty hot job market data and significantly more resilient ISM services... further underscores the idea that the Fed is unlikely to step-down the pace and severity of tightening."
Overnight, the two-year Treasury yield spiked by 14 basis points and remained at 2.9691 percent during the Asian session. This is higher than the 10-year yield of 2.9206 percent, indicating that the bond market anticipates a slowdown in GDP as a result of rate hikes.
The job market in the United States is doing better than projected, and the services sector is still doing well. The following significant data point will be released on Friday, when more comprehensive labour market statistics will be available to provide a more complete picture of the situation in the largest economy in the world.
The comments by Bullard and Waller, who should offer additional light on the thoughts of the hawkish party within the (Fed), will be the next litmus test for the direction in yields, according to Jan Nevruzi, rates strategist at NatWest Markets.
Are they embracing the worries of a recession or sticking to their stance that the Fed must move above neutral as soon as feasible and control inflation at any costs to growth?
At 1700 GMT, both Fed Governor Christopher Waller and St. Louis Fed President James Bullard are scheduled to give speeches.
The Fed-led worldwide rate tightening in recent months has fueled fears of a recession and harmed commodities like copper, oil, and iron ore that are sensitive to economic growth. As investors believe that Europe is the starting point of a global slowdown, the euro has also taken a beating.
Early in the Asian session, Brent crude futures fell below $100 a barrel. They last traded at $100.26, down 10% for the week. Shanghai copper held steady but has dropped 20% in the past month.
Australian and New Zealand dollars, which are considered to be growth-sensitive currencies, have also declined, despite making slight gains on Thursday, with the Aussie last up 0.5 percent to $0.6813.
While this is going on, the euro has dropped more than 2 percent this week, reaching its lowest level since 2002 at $1.0162 before stabilising at $1.0202 on Thursday. The euro is rapidly approaching parity with the dollar.
The fact that Europe's inflation rate is at record highs and energy prices are rising sharply indicate that there will be sustained upward pressure on consumer prices for some time to come. Dutch benchmark gas prices have doubled since the middle of June due to concerns over the future of Russian gas supplies to the west.
German electricity costs overnight reached a record high for the year.
According to Chris Weston, head of research at brokerage Pepperstone in Melbourne, "it's not just a question of recession, it's a question of how dark it gets in Europe." "All the trend-following market participants have recently piled into euro shorts."
Despite the strength of the U.S. dollar and the perilous position of Prime Minister Boris Johnson's leadership, one somewhat surprising highlight has been the relative stability of the pound, mostly because investors don't expect much to change if he resigns.
According to Ray Attrill, head of foreign exchange at National Australia Bank, "one reason sterling is not faring too badly is the idea that a new Tory administration and chancellor will fast-track fiscal easing," adding that a hawkish tone from the central bank also helped.
