News

Asian shares, U.S. futures slip, as traders eye policymakers

  • 29 October, 2021
  • 11:16 am EEST

Headlines

  • MSCI Asian benchmark falls 0.4%, European futures slip
  • Brent crude steady, on track for first weekly fall in eight
  • Australia’s yield curve control policy at risk
  • Euro strong after ECB meeting
  • Ether hits all-time high

Market

Asian shares dropped and were set to snap a three-week winning streak on Friday, with Chinese property stocks on track for their worst week in 32 months, while oil prices were also headed for their first weekly loss since August.

While a retreat in oil prices has offered some relief, concerns about slowing growth and rising inflation weighed on market sentiment, analysts said.

Currency and bond market traders also struggled to make sense of major central banks’ varied response to those problems. The Reserve Bank of Australia came into focus on signs it could be giving up on its yield curve control policy.

Futures

Futures pointed to a lower open in European and U.S. equity markets. The pan-region Euro Stoxx 50 futures were down 0.33% and FTSE futures shed 0.41%

S&P 500 futures lost 0.5%, and Nasdaq futures .NQcv1 fell 0.9% after Apple Inc and Amazon Inc posted results that missed expectations after Thursday’s close.

“The background noise hasn’t changed for the last few weeks, people are still concerned around stagflation, slowing growth numbers and rising inflation, but that’s been priced more in the bond market than the equity market right now,” said Kerry Craig, global market strategist at JP Morgan Asset Management.

“At the same time, you’re having not exactly clear messaging from the central bank responses around the world.”

Asia

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 0.6% on Friday and was on track for a weekly loss of 1.6%. But the benchmark was still up 2% in October, on track for its best month since April.

Chinese blue chips bucked the trend, gaining 0.64%, but an index of Chinese real estate firms lost 4%, and was down nearly 12% on the week, the most since February 2018.

Chinese developers are struggling with liquidity problems, and proposals to trial a property tax is not helping sentiment even as regulators seek to contain the fallout centred around embattled China Evergrande Group.

Evergrande’s shares lost 1.6% on Friday despite news it had met its second dollar-bond repayment obligation this month.

Japan’s Nikkei rose 0.25% ahead of Sunday’s lower house election in which the ruling party is expected to lose seats but the coalition government should remain safe.

CENTRAL BANKS

As inflation concerns grow, central banks’ rate policies remain in focus.

There is growing speculation the Reserve Bank of Australia will struggle to stick to its guidance that rates are unlikely to rise until 2024 after it did not intervene to defend its 2024 bond yield target on Friday.

Markets had expected the RBA to buy its key April 2024 bond AUG02750424= to defend its 0.1% target, as it had done last week, after a sharp bond-sell off took the yield to over 0.5% early on Friday.

As a result, Aussie bonds continued this week’s sharp sell off, with yields on three-year bonds AU3YT=RR hitting 1.28% on Friday, their highest since mid-2019.

The Aussie dollar AUD=D3 held near Thursday’s four-month high and was last at $0.754.

Euro zone bond yields jumped on Thursday after European Central Bank President Christine Lagarde disappointed investors’ hopes she would calm their concerns over surging inflation and rate hikes.

This sent the euro EURUSD higher, and the currency largely held onto those gains in Asian hours on Friday, last trading at $1.1665.

“The European Central Bank has finally shifted its official communication on inflation from the broad denial of the summer months towards a much more balanced assessment,” said ING analysts.

Investors were looking towards next week when the Federal Reserve, the Bank of England and the RBA all hold monetary policy meetings.

Benchmark U.S. 10-year yields inched up to 1.6031% US10YT=RR.

The gap between 5-year and 30-year Treasury yields US5US30=TWEB last stood at 79.2 basis points. It narrowed as far as 73.4 basis points overnight, its tightest since March 2020, due to heightened expectations the Federal Reserve will hike rates next year.

Commodities

Brent crude was steady at $82.36 a barrel.

But it was on track for its first weekly fall in eight weeks after U.S. oil stocks rose more than expected and Iran flagged it was resuming talks with Western powers which could lead to an end to sanctions. O/R

Spot gold XAU= slipped 0.2% to $1,794 an ounce.

 

By Alun John

Reliable Trading since 2012