Stocks steady as bitcoin falls, global bonds stall
Global stocks were on steadier ground on Wednesday, helped by an overnight rebound on Wall Street as a brief sell-off in bond and cryptocurrency markets eased.
Bitcoin BTCUSD reclaims the $90,000 level and hits a two-week high while Nasdaq NQ1! and S&P 500 ES1! futures rose 0.2% each.
EUROSTOXX 50 futures FESX1! rose 0.3%, while FTSE futures added 0.1%.
Calm returned to markets on Wednesday after a bad start to the week, where expectations of an interest rate hike in Japan triggered a global bond sell-off and exacerbated a decline in cryptocurrencies, leaving stocks caught in a rush of risk assets.
“Narrowing spreads and movement in the yen may have brought back some carry trade fears and weakened leverage positions,” said Kerry Craig, global market strategist at JP Morgan Asset Management, referring to the prospect of a reduction in interest rate differentials between the US and Japan.
“Right or wrong, there are periods when crypto performance is used as a measure of risk sentiment, but we also know that markets are sensitive to broader liquidity conditions.”
Japan’s Nikkei NI225 rose 1.5%, while MSCI’s index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.12%, weighed by losses in Chinese markets.
China’s blue-chip CSI300 index 399300 fell 0.26% while Hong Kong’s Hang Seng HSI Index lost 1.2%, as slowing Chinese services growth added to concerns about an economy grappling with a prolonged property slump.
In bond markets, movements in Japanese government bonds (JGB) were more orderly on Wednesday, although they continued to face pressure as investors increased bets on the Bank of Japan’s interest rate hike later this month.
The 10-year JGB yield (JP10YTN=JBTC) hit its highest level since June 2008 at 1.885%, while the two-year yield (JP2YTN=JBTC) rose one basis point to 1.015%. Bond yields move inversely to prices.
The yield on two-year US government bonds (US2YT=TWEB) fell 1.6 bps to 3.500%. The benchmark 10-year yield (US10YT=TWEB) was steady at 4.081%.
MORE DOVISH FED OUTLOOK
Given the current lack of major market catalysts, analysts said focus has also shifted back to the Federal Reserve’s expected interest rate cut next week, which has boosted market sentiment. (0#USDIRPR)
“I can’t see any reason why (equities) wouldn’t get good support in the FOMC rate cut next week, and I think you start to hit the sweet spot in mid-December when equity markets are just rallying,” said Tony Sycamore, market analyst at IG.
December is historically a good month for stocks.
Investors have also priced in a more dovish outlook for the Fed, with the view that White House economic adviser Kevin Hassett, reportedly the front-runner to become the next chairman, will pursue further rate cuts after he replaces Jerome Powell.
US President Donald Trump said on Tuesday that he would announce his nominee for Fed chairman early next year, and he has narrowed his list to one person.
This in turn weakened the dollar, leaving the euro EURUSD up 0.14% at $1.1642.
Sterling GBPUSD also rose 0.16% to $1.3236, while the dollar fell 0.14% against the yen USDJPY to 155.66.
“Hassett is dovish on monetary policy and closely aligned with President Trump. Therefore, his appointment could undermine the perceived independence of the FOMC, which is negative for the USD,” said Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia.
On the commodity side, oil prices continued their decline after falling in the previous session, as the market weighed weakening hopes for Russian-Ukrainian peace against concerns about oversupply.
Brent crude oil futures BRN1! rose 0.11% to $62.52 a barrel, while US crude CL1! rose 0.14% to $58.72 a barrel.
Spot gold GOLD was little changed at $4,206.89 an ounce.
Source: Reuters
