Cautious Sentiment Drives Down Equities; Yen Gains: Markets Wrap
Bloomberg · 19 Dec 2022 1.5K Views
(Bloomberg) -- Concern that further rate hikes from the Federal Reserve will trigger a recession reduced the appetite for riskier assets, sending equities lower in Asia after a second week of declines on Wall Street.

An Asian equity benchmark headed down for the third day, the longest losing streak in almost two months. European equity contracts edged slightly higher, while futures in the US pointed to limited gains after the S&P 500 and the tech-heavy Nasdaq 100 closed lower on Friday.

The yen strengthened after speculation that a shift is on the horizon for Japan’s monetary regime, while the yield on Japan’s benchmark five-year note touched the highest level in more than seven years. A top government spokesman denied a report that the Japanese prime minister may consider allowing more flexibility in the monetary framework.

If such flexibility does translate into an exit from Japan’s yield-curve control policy or if it suggests a higher target for the 10-year government bond yield, “the markets will absolutely interpret that as bullish yen. In fact, they already are in advance of that,” Sue Trinh, head of macro strategy at Manulife Investment Management, said on Bloomberg Television.

The dollar fell versus its major counterparts as investors cut long bets in the greenback while weighing the Fed’s outlook on rates.

Yields on US Treasuries edged higher, with the policy-sensitive two-year Treasury hovering just below 4.2%. Government bond yields rose in Australia and fell in New Zealand.

The risk of higher interest rates pushing the US into recession in 2023 is casting a pall over trading that’s winding down into year end.

Investors had cheered softer-than-expected US inflation data last week but that euphoria faded as Fed officials hammered home the message that rates would go higher for longer until they’re confident inflation has been subdued. A wave of rate hikes and hawkish outlooks from central banks across the globe, including the European Central Bank, have further bruised sentiment.

“Going forward, we are likely to hear from a number of Fed members,” Naeem Aslam, chief market analyst at Ava Trade, wrote in a note. “Most of them are going to say their opinion of the market, and usually, there is a vast difference of opinion among them. What that does is makes traders more confused and brings unnecessary market volatility.”

Meanwhile, traders are also keeping an eye on a surge of Covid infections in China and a pledge by the nation’s top leaders to focus on boosting the economy next year. That hinted at business-friendly policies, providing further support for the property market while likely scaling back fiscal stimulus.

In commodities, oil climbed on China’s pledge to revive consumption and a move by the US to refill its strategic crude reserves.

Iron ore fell on concern that the virus outbreaks in China may disrupt businesses and muddy hopes of a prompt improvement in the economy.

Key events this week:

  • China loan prime rates, Tuesday

  • Bank of Japan interest rate decision, Tuesday

  • US housing starts, Tuesday

  • EIA Crude Oil Inventory Report, Wednesday

  • US existing home sales, US Conference Board consumer confidence, Wednesday

  • US GDP, initial jobless claims, US Conf. Board leading index, Thursday

  • US consumer income, new home sales, US durable goods, PCE deflator, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:


  • S&P 500 futures rose 0.1% as of 6:30 a.m. in London. The S&P 500 fell 1.1% on Friday

  • Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 0.9%

  • Japan’s Topix index fell 0.8%

  • South Korea’s Kospi index fell 0.3%

  • Hong Kong’s Hang Seng Index fell 0.7%

  • China’s Shanghai Composite Index fell 2%

  • Australia’s S&P/ASX 200 Index fell 0.2%


  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro rose 0.3% to $1.0618

  • The Japanese yen rose 0.4% to 136.00 per dollar

  • The offshore yuan was little changed at 6.9797 per dollar

  • The British pound rose 0.2% to $1.2176


  • The yield on 10-year Treasuries advanced three basis points to 3.51%

  • Australia’s 10-year yield advanced eight basis points to 3.53%


  • West Texas Intermediate crude rose 0.6% to $74.73 a barrel

  • Spot gold was little changed

(Source : Bloomberg) , all rights reserved by original source.