LONDON, March 9 (Reuters) – Global markets enjoyed a rare lull on Thursday ahead of week-end U.S. jobs data that could easily trigger more multi-asset storms.
European stock markets began to decline slightly although there was little movement in the dollar/FRX or bond markets, where recession warnings became increasingly acute again. /WE
US Federal Reserve chief Jerome Powell stuck to his message of higher and potentially faster interest rate hikes during a hearing on Wednesday, but also stressed that the decision would depend on the strength of the data. incoming.
This means traders will be watching US payrolls data even more closely on Friday and then the US inflation numbers to follow on Tuesday.
Financial markets are now pricing in a nearly 80% chance of a 50 basis point rate hike at the Fed’s March meeting, up from around 30% at the start of the week. The US central bank is also increasingly expected to push rates to 6%.
“Our main view is that 5.5% will be enough, but they (the Fed) will have to stay there longer than the market expected.” said Iain Cunningham, co-head of Multi-Asset Growth and co-portfolio manager of the Ninety One Global Macro Allocation Fund.
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“A recession in the United States is our central scenario,” he said, adding, however, that the fund was still very long on the dollar, especially against currencies like the Canadian dollar and the British pound.
The U.S. dollar index, measuring the value of the greenback against a basket of major peers, hovered near a three-month high at 105.57. However, it lost 0.4% against the Japanese yen at 136.78 to the dollar.
Japan’s lower house of parliament on Thursday endorsed the government’s nominee, Kazuo Ueda, to be the next central bank governor, signing off on the appointment of new leadership who will be tasked with leading an exit from ultra-loose monetary policy.
The Bank of Japan, however, is expected to maintain what it calls control of the yield curve and rock-bottom rates at its current chief’s final meeting on Friday.
On Thursday, 10-year government bond yields again hit the 0.5% cap set by the BOJ.
The greenback was also supported against the Canadian dollar at 1.3803 Canadian dollars, the highest level in nearly four months, thanks to a dovish Bank of Canada, which left interest rates unchanged on Wednesday.
The Chinese yuan meanwhile weakened towards the key psychological level of 7 to the dollar after the slowest annual consumer price inflation data in a year, stoking doubts about the strength of its economic recovery. .
BACK TO THE 80S
Benchmark government bond markets remain the main lightning rod for interest rate expectations and the degree of pain that sharp rises are likely to inflict on the global economy.
Two-year Treasury yields held near 15-year highs at 5.04%, while benchmark 10-year yields were flat at 3.9953%.
In particular, the spread between the yields of the shorter-term two-year and the longer-term 10-year Treasury bills reached a negative level of 108.2 basis points. It was the most extreme reversal since 1981. Reversals are considered reliable indicators of recession.
Also in Europe, the German 2s10 curve was at its most inverted point since 1992, with German 2-year yields at a post-2007 high of 3.35% and 10-year yields at 2.68%.
“Powell admitted the March decision was data driven,” said Thierry Wizman, global currency and rates strategist at Macquarie. “So the question we face is whether January’s economic reacceleration was an anomaly or a trend.”
Prepayment caution meant S&P 500 and Nasdaq futures were 0.3% in the red. The indices also struggled on Wednesday after private payrolls topped consensus estimates and demand for home loans rose despite higher mortgage rates.
Forecasts for Friday’s key figures call for a modest increase in payrolls of 205,000 after January’s jump of 517,000 led markets to revise their monetary tightening forecasts.
Overnight in Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.6%, after falling 1.4% the previous session. The Japanese Nikkei (.N225), on the other hand, rose 0.6%.
Commodity prices were mostly down, with Brent crude falling to $82.45 a barrel, US crude down to $76.39 a barrel and global growth-sensitive copper metal down 1% . Gold was slightly higher at $1817 an ounce.
Additional reporting by Stella Qiu in Sydney and Joice Alves in London; Editing by Angus MacSwan
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