European equities resist interest rate risks, the yen sags again

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  • European stocks rebound after two days of decline
  • The Fed Dominates Broader Markets; 100bp upside risk next week
  • China’s housing stocks buoyed by hopes of official aid
  • Intervention risk keeps dollar below 145 yen

LONDON, Sept 15 (Reuters) – Stock markets stagnated and the dollar and bond yields rose on Thursday as the likelihood of a further rise in global borrowing costs, including a possible 100 basis point rise in US rates next week, maintained the downward trend. prowls it.

Major European stock markets got off to a positive start after two days in the red, but the Japanese yen – which hit a 24-year low this month – fell again as Tokyo posted a record trade deficit on the day on the next day. Read more

It was also a big day for the crypto markets with a major software upgrade to the Ethereum blockchain dubbed the “merger” read more.

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China’s central bank had refrained from providing more support overnight, although there were welcome signs of support elsewhere for the country’s struggling property market.

The broader focus, however, remained squarely on the risk of rising interest rates and painfully high energy prices causing recessions.

Financial ratings firm Fitch became the latest to cut its forecast for the global economy, as bond markets watched the German yield curve flatten markedly – another classic indicator of recession.

“We’ve had kind of a perfect storm for the global economy in recent months,” said Fitch chief economist Brian Coulton, blaming “the gas crisis in Europe, a sharp acceleration in interest rate hikes interest and a deepening real estate crisis in China”.

The dollar, which has soared this year amid soaring US interest rates and the global security race, has again shown its strength.

Expectations that the Federal Reserve will raise rates by 75 to 100 basis points next week sent the greenback up 0.3% against the yen, after the yen surged on Wednesday when the Bank of Japan called exchange offices sparked intervention discussions. Read more

The euro fell back below parity against the dollar. It was down 0.15% at $0.9964 and not far off the 20-year low of $0.9864 hit last week. The British pound, which has also been hammered over the past month, was also 0.25% lower at $1.15115. /FRX

“The (BoJ) measures were really the last efforts to halt the depreciation of the yen before any real intervention,” said Derek Halpenny, head of European global markets research at MUFG.

“But it is also very likely that there is still a deep reluctance on the part of the authorities to intervene,” he added, believing that such action might not succeed in the current environment.

Japan has not intervened in the foreign exchange markets since 2011 and at the time it was about restraining an overly strong yen.

The Yen’s Biggest Drop in Decades

FLAT AND FLAT

Tokyo is not the only Asian capital to worry about the weak currency. South Korea’s won bounced off a nearly 13-year low overnight as it emerged its authorities had again launched verbal currency intervention.

Among major stock markets, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) turned during the session to end down 0.2%. The Nikkei (.N225) rose 0.2%, however, while Hong Kong’s main real estate index (.HSMPI) jumped more than 4% after reports that some Chinese developers were finally allowed to cut prices. price.

The world’s second-largest economy narrowly avoided contracting in the second quarter as widespread COVID-19 shutdowns and a slump in the housing sector severely hurt consumer and business confidence.

With few signs that China will significantly ease zero-COVID soon, some analysts expect the economy to grow just 3% this year, which would be the slowest since 1976, excluding the 2.2% expansion during the first hit of COVID in 2020.

“Stock markets are in no man’s land right now,” said Sean Darby, global equity strategist at Jefferies in Hong Kong.

“Better macro news to support earnings is being ignored as (there is) the need for further tightening to stifle growth – while CPI prints are not coming down fast enough,” he said. .

S&P 500, Dow and Nasdaq futures were all broadly flat, indicating a slow day on Wall Street later.

Fed funds futures, which were undervalued with stocks after Tuesday’s stubbornly high US inflation reading but were helped by lower producer prices on Thursday, imply a probability of 30 % of a 100 basis point rate hike next week. They have the benchmark US interest rate as high as 4.3% by February.

US two-year yields, which track short-term rate expectations, edged higher to 3.029%, taking the week-to-date rise to 23 basis points in a seventh straight weekly gain.

European moves saw the German 2-year yield rise 2.5 basis points to 1.435%, leaving it just off its highest since July 2011. Germany’s 10-year rate, the eurozone benchmark, rose 4.5 basis points (bp) to 1.746%.

ING analysts said comments by the European Central Bank’s chief economist, Philip Lane, on Wednesday endorsed the hawks’ narrative. This is “another clue that the central bank has experienced a significant change in its reaction function,” they wrote.

Later in the day, European trade data is expected and Chinese President Xi Jinping meets Russian Vladimir Putin in Uzbekistan.

In oil markets, Brent futures fell 24 cents to $93.86 a barrel. Spot gold fell 0.4% to $1,689 an ounce, after sliding steadily as the dollar and US yields rose.

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Additional reporting by Stefano Rebaudo in Milan, Tom Westbrook in Singapore and Wayne Cole in Sydney

Our standards: The Thomson Reuters Trust Principles.

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