- Wall Street is snapping a winning streak as data turns soft
- Higher bond and futures prices usher in more Fed cuts this year
- RBNZ rose 50 basis points vs. forecasts of 25; kiwi rose 1%
SINGAPORE (Reuters) – Stocks struggled to make headway on Wednesday, as the dollar extended losses and bonds clung to gains, as signs of a slowing U.S. labor market made investors worry about the economic outlook, while a larger-than-expected rate. The kiwi dollar rose.
Asian trade waned due to holidays in Hong Kong and China, which left the MSCI Asia-Pacific Excluding Japan (.MIAPJ0000PUS) slightly better than flat, while Japan’s Nikkei (.located) has fallen since mid-March.
Futures indicated that European markets were poised for a broadly lower open, with Eurostoxx 50 futures down 0.26% and Germany’s DAX futures down 0.12%. However, FTSE futures rose 0.04%.
Overnight, a four-day winning streak ended for Wall Street indices, with all three major indices falling, and interest rate expectations dented after data showed U.S. job opportunities reached their lowest level in nearly two years in February.
Two-year Treasury yields, which closely track short-term interest rate expectations, fell nearly 15 basis points and the dollar trailed the move, hitting a two-month low.
As the confidence concerns that have plagued banks have not dissipated, “the potential for a market recession has increased,” Jamie Dimon, CEO of the largest US bank, JPMorgan Chase & Co., said in a letter to shareholders.
“The current crisis is not over yet,” he said. “And even when he’s behind us, there will be repercussions from him for years to come.”
US interest rate futures have risen strongly over the past few weeks as traders believe that banks under pressure will tighten lending anyway and save the need for monetary policy makers to do the job.
The latest futures prices suggest there is a better chance that the Federal Reserve is even done raising interest rates, cutting more than 60 basis points this year.
The 2-year yield is 3.864% and the 10-year yield is 3.352%, with the entire US yield curve below the top of the federal funds rate window, which is 5%.
Gold, which does not pay a yield, hit a one-year high above $2,000 an ounce overnight. It was last up 0.2% at $2,023.27 an ounce. US gold futures rose 0.16%, to $2,025.40 an ounce.
“The Fed may be sneaking around again, but the probability distribution around the policy rate is skewed sharply to the negative,” said John Briggs, head of economics and market strategy at NatWest Markets.
“We don’t think this is something that will change in market rates anytime soon.”
The dollar space
Outside the US, markets see other central banks continuing their hikes to tame inflation. A Reuters poll of foreign exchange strategists showed that most of them expect continued pressure on the dollar this year.
The Reserve Bank of New Zealand surprised traders with a 50 basis point hike on Wednesday that sent the New Zealand dollar up 1% at one point to a two-month high – in contrast to Australia’s central bank, which halted its advances on Tuesday.
Investors elsewhere are seeing an uptick in store rates in Europe, as German exports have turned out to be surprisingly strong. The euro settled at $1.0952, very close to the two-month high it recorded overnight against the dollar at $1.0973. The kiwi was last up 0.60% at $0.635.
China and Asia in general are the great hopes for growth.
Japanese data on Wednesday showed that services activity grew at its fastest pace in more than nine years in March – although factory output remained weak.
Data earlier in the week showed that China’s sprawling manufacturing sector lost momentum in March, although investment inflows hit a record high in the first quarter on optimism among foreigners that policy support for business lies ahead.
Commodity markets are stabilizing after oil prices rose on Monday amid news of surprise OPEC+ production cuts. US crude rose 0.4 percent to $81.03 a barrel, while Brent crude recorded $85.31, up 0.44 percent on the day.
Editing by Sam Holmes. Editing by Stephen Coates
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