By Wayne Cole
SYDNEY (Reuters) – Asian shares fell on Monday as growing risks of more aggressive interest rate hikes in the U.S. and Europe pushed bond yields higher rate and test stock and earnings valuations.
Federal Reserve Chairman Jerome Powell’s pledge to control inflation through policy “pain” has dashed hopes that the central bank will bail out markets as often as it has in the past.
Isabel Schnabel, a member of the European Central Bank’s board of directors, issued a stern love, warning over the weekend that the central bank must now act forcefully to fight inflation, even if it drag its economy into recession.
Jason England, global bond portfolio manager at Janus Henderson Investors, said: “The main takeaway is that containing inflation is the Fed’s top priority, and the funds rate needs to reach a restrictive 3.5% to 4.0% level.”
“Interest rates will need to stay elevated until inflation falls to the 2% target, so it’s too early for rates to price in the cuts the market is pricing in next year.”
Futures are now priced in The probability of the Fed raising interest rates is about 44% 38 basis points in September and see rates peak in March. 38-4.0% range.
Much may depend on what August jobs data shows this Friday, when analysts are looking for modest growth, Following the July blockbuster 285, income.
Hawkish messages are not what Wall Street wants to hear, S&P 109 Futures fell a further 1.1%, after falling nearly 3.4% on Friday. Nasdaq futures fell 1.5% as technology stocks were pressured by the prospect of slower economic growth.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7%. Japan’s Nikkei fell 2.3%, while South Korea fell 2.3%.
Aggressive calls from central banks lift global short-term yields, while U.S. Treasury curve inverts further as investors price in eventual economic downturn . [US/]
U.S. two-year yield rose to 3.44% , much higher than the 10-year rate of 3.%. Yields in Italy, Spain and Portugal climbed across Europe, posting double-digit gains.
As USD climbs to 1686, all benefiting the safe-haven USD.08 just a
beard – 44 YEAR HIGH*).08 arrives in July.
USD scores 5 – JPY at 75 one-week high. 21, the bulls want to retest their July top 139. 38.
EUR struggles near $0. 9937 Not far from last week’s price, a 20-year low of $0. 99005, while the pound fell to a one-month low of $1. 139.
“ EUR/USD is likely to stay below parity this week,” said Joseph Capurso, head of international economics at CBA.
” since Gazprom (MCX: GAZP) will close its mainline pipeline to from 21 to deliver gas to Western Europe for three days from August to September 2,” he added. “There are concerns that gas supply may not be restored after the shutdown.”
These concerns led to a surge in European gas futures 12% last week, adding fuel to the fire for inflation.
The drag on gold from a rising dollar and yields has been hovering around $1 an ounce 735. [GOL/]
Oil prices were little changed in early trade and were broadly supported by speculation that OPEC+ could cut production at its Sept. 5 meeting. [ O/R]
Brent Crude Oil fell 9 cents to $90.44, while US Crude Oil up 6 cents to $44.20 per barrel.