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Global equity/currency markets update: Stocks subdued, U.S. interest rate hike prospect boosts dollar

8 Aug 2022 8:33 am
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Mumbai, 8 Aug (Commoditiescontrol): Stocks in Asia were mostly softer on Monday and the dollar held firm after a stunning U.S. payrolls report pushed back against talk of recession but also bolstered the case for more super-sized rate hikes.

Markets quickly moved to price around a 70% chance the Federal Reserve will lift rates by 75 basis points in September, sending two-year yields up 20 basis points on Friday and further inverting the curve.

The blockbuster data only raised the stakes for the July U.S. consumer prices report due on Wednesday, which could see a slight pullback in headline growth, but likely a further acceleration in core inflation.

Economist are betting on 75 bps rate hike in July by Fed despite sluggish growth and an expected slide to a 0.2% m/m July CPI gain. The key question is whether it will decide that a material rise in the unemployment rate is necessary to achieve its objectives, they warned.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.5%, after three sessions of gains. Japan's Nikkei was flat and South Korea's KOSPI dipped 0.2%, while Chinese blue chips eased 0.1%.

EUROSTOXX 50 futures fared better and added 0.4%, while FTSE futures rose 0.2%.

There was little obvious market reaction to news that the U.S. Senate on Sunday passed a sweeping $430 billion bill intended to fight climate change after some compromises on taxation within the deal.

The Exceptional Dollar Two-year Treasury yields were up at 3.25% , fully 40 basis points above 10-year yields.

Bonds also got a safe-haven bid due to unease over Beijing's sabre rattling against Taiwan as China conducts four days of military exercises around the island.

Chinese data out over the weekend showed exports picked up unexpectedly in July with a gain of 18%, while imports lagged with a rise of just 2.3%.

The jobs boom combined with the jump in yields to bolster the U.S. dollar, which was up at 106.640 against a basket of currencies having gained 0.8% on Friday.

The dollar held at 135.27 yen after jumping 1.6% on Friday, while the euro was struggling at $1.0173 and not far from chart support around $1.0095.

The single currency was not helped by news Moody's had cut Italy's outlook to negative as Prime Minister Mario Draghi's resignation shook the country's political landscape.

The rise in the dollar was a setback for gold, though it had managed to bounce from the lows hit on Friday to stand at $1,773.

Oil prices continued their recent retreat after suffering the worst week since April on worries about stalling global demand as central banks keep tightening. Brent lost 11 cents to $94.81, while U.S. crude eased 13 cents to $88.88 per barrel.

(By Commoditiescontrol Bureau: +91-22-40015505)

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