By Rae Wee
SINGAPORE, Oct 5 (Reuters) – Stocks were off to a strong start on Monday while the dollar rose even as investors pared back expectations of a Federal Reserve rate hike this month, as an uncertain inflation backdrop kept the prospect of further tightening in view.
Trading was thin in Asia with holidays in China, South Korea and Australia’s New South Wales, though equity markets took their cue from Wall Street’s moves on Friday.
Data last week showed US job growth slowed more than expected in September and the nonfarm payrolls count for the prior two months was revised sharply lower, which markets believed would almost take another rate hike from the Fed this month off the table.
“Labour conditions are stable overall, but Friday’s downward revisions signal that the US economy has lost jobs in two out of the nine months year to date, and the risk of further employment losses means that the Fed can’t hike another 100 basis points from here, which is what the curve is pricing in,” said Jose Torres, senior economist at Interactive Brokers.
Investors are now pricing in less than a 20% chance that the Fed could raise rates this month, as compared to a 64% chance a week ago, according to the CME FedWatch tool. But traders still expect a hike in December.
The growing prospect of a Fed pause this month helped Japan’s Nikkei rise 2.5%, while MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.9%.
Nasdaq futures added 0.17% while S&P 500 futures were flat. EUROSTOXX 50 futures gained 0.3% and FTSE futures tacked on 0.4%.
In Brazil, markets there are expected to jump later in the day after it became clear that Brazilian Senator Flavio Bolsonaro will face President Luiz Inacio Lula da Silva in the runoff of a presidential election, doing better than expected in the first round of voting.
DOLLAR EXTENDS CLIMB, BONDS IN FOCUS
The dollar charged higher on Monday, helped by still-elevated US Treasury yields and as weakness in the euro boosted the greenback.
The euro slid to a 17-month low and last traded 0.6% lower at $1.1185, weighed down by fiscal worries in France.
Jane Foley, head of FX strategy at Rabobank, said the surge in yield spreads between French and German government bonds has triggered a debate about contagion risks into other euro zone asset markets and raises the prospect that the euro could be impacted by outflows.
“These concerns regarding the outlook for the single currency are layered on top of those related to low European gas storage, already high energy prices, persistent competition from China, a weakened chancellor in Germany and the risk of hybrid attacks from Russia,” she added.
Against the yen, the dollar rose 0.12% to 158.01, while sterling fell 0.25% to $1.3205.
Bonds, meanwhile, held steady, with benchmark 10-year US Treasury yields retreating slightly to 5.2579% while two-year yields stood at 4.8059%. [US/]
Still, yields across major economies remain near multi-year highs as bond prices come under pressure from deteriorating government finances, a glut of issuance and elevated energy costs.
A trader, who declined to be identified as they were not authorised to speak to the media, said clients have expressed reluctance to buy US Treasuries unless there was a “material improvement” in the Middle East war.
In commodities, oil prices edged lower as rising Middle East crude exports and a release of oil stocks by the Group of Seven nations boosted supplies, offsetting concerns about further damage to Gulf oil infrastructure amid the US-Israeli war on Iran.
Brent crude futures were down 0.7% at $101.52 per barrel while US crude slid more than 1% to $90.11 a barrel. [O/R}
Spot gold was little changed at $4,143.82 an ounce. [GOL/]
(Reporting by Rae Wee; Editing by Edwina Gibbs and Kim Coghill)
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