Stocks Mixed, US Futures Up as Dollar Rally Pauses: Markets Wrap

(Bloomberg) -- Asian markets traded on a cautious note Tuesday following another selloff in US stocks, soaring bond yields and volatile currency markets as investors brace for a heightened risk of global recession.

A gauge of the region’s equities fluctuated as shares edged higher in Japan and Australia while Hong Kong stocks fell around 1%. US futures contracts rose after the S&P 500 closed at its lowest since 2020 and the Cboe Volatility Index spiked past 30, a level it hasn’t closed above since June. 

Bonds remained under pressure in Japan and Australia, while the benchmark 10-year Treasury yield held near 3.9% -- a level last seen in 2010.

The Bank of Japan announced an unscheduled bond buying operation across a wide range of maturities after the country’s 20-year bond yields rose to the highest level since 2015. The rate on the benchmark 10-year security touched the 0.25% upper limit of the BOJ’s tolerance band as global debt markets come under pressure from expectations for further monetary tightening.

Read More: Everything-Selloff on Wall Street Deepens on 98% Recession Odds

The dollar gauge inched back from a record high Monday, when Federal Reserve officials repeated hawkish comments on policy. Asian currencies including the yen and yuan strengthened slightly while staying around levels that have caused concern from authorities in Japan and China. 

Volatility across markets was also reflected by the risk of future price swings, which reached the highest since the beginning of the pandemic, as shown by a Bank of America index.

The pound advanced following its drop to a record low Monday. The Bank of England said it may not act before November to stem a rout, leaving traders wary of the risk that the currency could drop to parity with the dollar.  

The turmoil in markets shows little sign of turning Fed officials away from hawkish rhetoric. Boston Fed President Susan Collins and her Cleveland counterpart Loretta Mester said additional tightening is needed to rein in stubbornly high inflation and Atlanta Fed President Raphael Bostic also said the central bank still has a ways to go to control inflation.

Read More: Fed Officials Say That Tackling Inflation Is Their No. 1 Job

“The market is pricing in some Fed increases, but we’re a bit worried that it might not be pricing in everything,” Laila Pence, president of Pence Wealth Management, said on Bloomberg Television. “We got whipsawed in August when inflation was up not down -- everyone is nervous.”

Goldman Sachs downgraded equities to underweight in its global allocation over the next three months while remaining overweight cash, saying rising real yields and the prospect of a recession suggest the rout has further to run.

Negative sentiment is flowing into markets for energy and raw materials as well. West Texas Intermediate crude oil traded around $77 a barrel near its January lows.

How much damage is a strong dollar causing? That’s the theme of this week’s MLIV Pulse survey. It’s brief and we don’t collect your name or any contact information. Please click here to share your views.

Key events this week:

• China industrial profits, Tuesday
• US new home sales, Conference Board consumer confidence, durable goods, Tuesday
• Fed Chair Jerome Powell and Charles Evans speak at events, Tuesday
• Fed’s Mary Daly, Rafael Bostic, Charles Evans and ECB President Christine Lagarde speak at events, Wednesday
• Euro zone economic confidence, consumer confidence, Germany CPI, Thursday
• US initial jobless claims, GDP, Thursday
• Fed’s Loretta Mester, Mary Daly speak at events, Thursday
• China PMI, Friday
• Euro zone CPI, unemployment, Friday
• US consumer income , University of Michigan consumer sentiment, Friday
• Fed’s Lael Brainard and John Williams speak, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.6% as of 6:21 a.m. in London. The S&P 500 fell 1% Monday
• Nasdaq 100 futures gained 0.7%. The Nasdaq 100 dropped 0.5%
• Japan’s Topix index increased 0.4%
• South Korea’s Kospi index lost 0.9%
• Hong Kong’s Hang Seng Index fell 0.9%
• China’s Shanghai Composite Index added 0.5%
• Australia’s S&P/ASX 200 Index rose 0.3%
• Euro Stoxx 50 futures gained 0.5%

Currencies

• The Bloomberg Dollar Spot Index slipped 0.3%
• The Japanese yen rose 0.2% to 144.53 per dollar
• The offshore yuan gained 0.1% to 7.1637 to the greenback
• The euro climbed 0.3% to $0.9637
• The British pound climbed 0.8% to $1.0770

Cryptocurrencies

• Bitcoin was up 4.6% at $19,883
• Ether rose 3.8% to $1,375

Bonds

• The yield on 10-year Treasuries fell almost five basis points to 3.88%
• Australia’s 10-year yield climbed nearly nine basis points to 4.07%

Commodities

• West Texas Intermediate crude rose 0.8% to $77.34 a barrel
• Gold traded climbed 0.6% to $1,631.56 an ounce

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