Asia Set to Join Risk Rally as Dollar Weakens, Oil Opens Week Lower: Markets Wrap

US futures rose early Monday while contracts for Japan, Australia and Taiwan all pointed higher; oil edged lower as investors assessed the outlook for demand

Investors will also be digesting the potential impact of Ukraine’s counter-offensive.
By Garfield Reynolds and Yongchang Chin
September 11, 2022 | 07:03 PM
Reading time: 2 min.

Bloomberg — Asian equities are poised to follow Wall Street’s Friday rally while major currencies regain some of the ground they lost to a surging dollar that’s rattled global markets.

US futures rose early Monday while contracts for Japan, Australia and Taiwan all pointed higher. Markets in China, Hong Kong and South Korea are closed for holidays.

The S&P 500 topped its 100-day average on Friday to snap a three-week losing streak and the Nasdaq 100 jumped more than 2%. Profitless tech firms, meme shares and Bitcoin all rallied.

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The euro led gains versus the greenback in Asia after Bundesbank President Joachim Nagel signaled support for further interest-rate hikes in Europe. The yen was steady against the dollar, with investors on guard after officials in Tokyo increased their jawboning of the currency over the weekend.

The rebound in risk assets and the retreat in the dollar at the end of last week came despite hawkish remarks from Federal Reserve officials. That stance, and recession worries, has driven equities down to nearly oversold levels. The Levkovich Index, a sentiment gauge, fell to -16 last week, a hair away from the -17 level that defines panic. Bank of America Corp.’s bull-and-bear indicator slid to the “maximum bearish” level -- often seen as a contrarian buy signal.

Traders almost fully expect another jumbo-sized Fed hike next week, following two 75-basis-point increases. Fed Bank of St. Louis President James Bullard said he was leaning “more strongly” toward a third straight boost of that magnitude. His Kansas City counterpart Esther George noted officials have a “clear-cut” case for continuing to remove monetary support.

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Investors will also be digesting the potential impact of Ukraine’s counter-offensive, after its forces continued their rapid advance in the Kharkiv region, exploiting an extraordinary collapse of Russian defenses.

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Looking ahead, markets will be focused on the August consumer-price index due Tuesday, which is seen as one of the key reports before the next Fed rate decision. While an expected 8% rise in the CPI on the year would suggest inflation is cooling, the core measure that excludes food and energy is seen accelerating.

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.3% as of 7:40 a.m. in Tokyo. The S&P 500 1.5%
  • Nasdaq 100 futures gained 0.4%. The Nasdaq 100 2.2%
  • Nikkei 225 futures climbed 0.7%
  • Australia’s S&P/ASX 200 Index futures jumped 1.1%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%
  • The euro rose 0.3% to $1.0067
  • The Japanese yen was little changed
  • The yield on 10-year Treasuries was little changed at 3.31% on Friday

Commodities

  • West Texas Intermediate crude slipped 0.4% to $86.49 a barrel
  • Gold futures were at $1,718.92

Oil opens lower

Oil edged lower as investors assessed the outlook for demand and a welter of details about a US-led plan to cap the price of Russian crude.

West Texas Intermediate eased toward $86 a barrel in early Asian trading after a volatile ride last week, when prices swung in a wide arc to end little changed. Traders have been concerned about softer demand as global growth slows and China maintains its bid to control Covid-19 by curbing activity.

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In the US late Friday, the Treasury issued rough compliance guidelines for the proposed cap on Russian oil, focusing on the documentation needed by the private sector to adhere to the program, which is meant to kick in from December as Europe tightens sanctions on flows. Deputy Treasury Secretary Wally Adeyemo said that Moscow would have no choice but to participate.

Crude has sunk by nearly a third since June, shedding all the gains since Russia’s invasion of Ukraine upended global trade flows. The reversal has come as central banks including the Federal Reserve tighten policy to quell inflation. The US price-cap plan is meant to reduce Moscow’s income from oil sales, squeezing the flow of funds used to finance the war.

Read more at Bloomberg.com