Hawkish Australia heightens policy worries
Singapore — A surprisingly large rate rise in Australia weighed on shaky Asian stocks on Tuesday and pushed the yen to a fresh 20-year low, making investors even more nervous ahead of US inflation data and central bank meetings in Europe and the US.
The Reserve Bank of Australia raised interest rates by the most in 22 years and flagged more tightening to come as it battles to restrain surging inflation, stunning markets and sending the Aussie up briefly.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1% as Hong Kong’s market pared back some of Monday’s gains. Japan’s Nikkei inched up 0.3%.
E-mini futures for the S&P 500 fell 0.58%, while the pan-region Euro Stoxx 50 futures were down 0.86%.
British Prime Minister Boris Johnson survived a no-confidence vote among his Conservative Party’s MPs on Monday, but gilts and treasuries nursed losses from selling that began as talk of a move to replace him gathered steam through London and New York trade.
The 10-year treasury yield rose 9.9 basis points overnight and hit a May 11 high of 3.0640%. The move has pulled the dollar higher and poured cold water on initial optimism about China’s emergence from Covid-19 lockdowns.
The dollar added another 0.8% against the yen on Tuesday to touch 132.955, its highest since 2002, as the Bank of Japan is a standout laggard while the rest of the world moves to try to hit inflation hard with interest rate hikes.
Ten-year gilt yields rose as far as 10.2 basis points to a seven-year high of 2.256% on Monday.
“The train of thought appears to be that any path to an earlier (British) election could lead to more fiscal measures out of the UK,” said NatWest Markets strategist John Briggs.
“This in turn has higher inflation risks,” he said, while across the Atlantic “the market feel is one of back to where does this stop,” as the 10-year treasury yields topped 3%.
Beijing is easing pandemic curbs and, on Monday, the Wall Street Journal reported that a cybersecurity probe of ride-hailing giant Didi would end shortly, triggering a wave of short covering across the internet sector.
“Even what ought to have been resounding China relief, driven by easing regulatory risks and Covid restrictions, is set to be paralysed by the risks of liquidity withdrawal and risk re-pricing shocks,” said Mizuho economist Vishnu Varathan.
Fear that a hot US inflation reading on Wednesday will lock in even more Federal Reserve interest rate rises beyond next week’s expected 50 basis points hike kept the US dollar on the front foot.
The euro was pushed 0.2% lower and below its 50-day moving average to $1.0677, but kept from further losses by jitters about the possibility of a rate hike or hawkish tone from the European Central Bank, which meets on Thursday.
The yen was friendless after Bank of Japan governor Haruhiko Kuroda stayed dovish on Tuesday, promising support for the economy and easy monetary policy even as prices start to rise.
Crude oil was firm and Brent futures held at $120 a barrel.
The rise in US yields weighed on gold, which dipped a fraction to $1,839 an ounce. Investors’ nervous mood clipped cryptocurrencies and bitcoin was last down about 5%, just below $30,000.
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