- Asian stock markets:
- Nikkei slips, US stock futures rise
- Oil prices are falling despite the Israeli attack on Gaza
- The Fed, BoE and BOJ are all holding meetings this week
- Apple’s profits come before US payrolls
SYDNEY, Oct 30 (Portal) – Asian stock markets were mixed on Monday as Israel’s push into Gaza raised fears of a wider conflict ahead of central bank meetings in the United States, Britain and Japan, which saw one in the latter country There could be a tightening of monetary policy.
Earnings season continues, with Apple, Airbnb, McDonald’s, Moderna and Eli Lilly & Co. reporting this week, among others. Results so far have been disappointing and contributed to the S&P 500’s retreat into correction territory (.SPX).
“Price performance is poor as SPX failed to defend an important level of 4,200. The risk is that it heads toward the 200-week moving average at 3,941 before a trading rally,” BofA analysts said.
S&P 500 futures rose 0.4% to 4,153.5 on Monday, while Nasdaq futures rose 0.5%. EUROSTOXX 50 futures fell 0.1% and FTSE futures rose 0.2%.
Risk appetite has been dampened by Israel’s push to surround Gaza’s capital in a self-described “second phase” of a three-week war against Iran-backed Hamas militants.
MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.04% after hitting a one-year low last week. Chinese blue chips (.CSI300) gained 0.6%.
Shares in China Evergrande Group (3333.HK) fell as much as 23% in mid-morning trading but later pared losses to 5% after Hong Kong’s High Court postponed a liquidation application for the troubled property developer.
Japan’s Nikkei (.N225) fell 0.95% on speculation that the Bank of Japan (BOJ) may adjust its yield curve control (YCC) policy after its two-day monetary policy meeting ends on Tuesday.
Many analysts expect the central bank to raise its inflation forecast to 2.0%, but are unsure whether it will finally abandon YCC given market pressure on bonds.
“Ongoing uncertainty over the wage outlook combined with tensions in global bond markets could prompt the BOJ to err on the side of caution, making our view that YCC will be abolished seem very reasonable,” analysts at Barclays said.
“The BOJ could still choose to change its policy, but less drastically, perhaps by raising the cap on 10-year yields, as it did in July.”
Yields are already at 0.89%, their highest since 2013, and eliminating YCC altogether would likely increase pressure on global markets already reeling from a brutal sell-off in U.S. Treasuries.
All done?
10-year Treasury yields were at 4.8751% on Monday, after rising 30 basis points so far this month, to hit a 16-year high of 5.021%.
Sentiment will be further tested this week when the Treasury announces its refund plans, with further increases likely. NatWest Markets expects $885 billion in marketable loans in the fourth quarter and $700 billion in the following quarter.
The market’s sharp rise in borrowing costs has convinced analysts that the Federal Reserve will stand firm at its policy meeting this week, with futures suggesting a full chance of rates remaining at 5.25-5.5%.
The market has also priced in 165 basis points of easing for 2024, starting around mid-year.
“The Fed appears to have settled on the view that the recent tightening of financial conditions due to higher long-term interest rates has made another rate hike unnecessary,” said analysts at Goldman Sachs, who estimated the rise in yields to be the equivalent of 100 basis points of tariff increases.
“The story of the year so far has been that the economic revival has not prevented further rebalancing of the labor market and progress in fighting inflation,” they added. “We expect this to continue in the coming months.”
U.S. employment is still forecast to have increased by a solid 188,000 in October following September’s blockbuster gain, but annual growth in average earnings is expected to slow to 4.0% from 4.2%.
The Bank of England is also expected to remain on hold this week, with markets pricing in around a 70% chance that the tightening will be complete overall.
Oddly enough, the rise in US yields has not helped the dollar rise recently.
“Similarly, the decline in global stock markets and ongoing uncertainty surrounding the Hamas-Israel conflict have not done much to push the dollar higher against risk-sensitive currencies,” Capital Economics analysts wrote in a note.
“This reinforces our belief that a relatively optimistic assessment of the US outlook is now largely priced into the dollar.”
The dollar was steady against a basket of currencies at 106.56, after recovering between 105.350 and 106.890 last week. The yen was flat at 149.60, below last week’s high of 150.78.
The euro was quoted at $1.0563 and has remained almost unchanged so far this month.
In commodity markets, gold was steady at $1,998 an ounce.
Oil prices fell as concerns about demand outweighed risks to Middle East supplies, at least for now.
Brent lost $1 to $89.45 a barrel, while U.S. crude fell $1.13 to $84.41.
Reporting by Wayne Cole; Editing by Jamie Freed
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