By Marc Jones
LONDON (Reuters) – Stocks were mostly higher on Thursday as dovish comments from Federal Reserve officials and a smooth auction of super long-term debt in Japan eased some of the recent government bond market jitters.
China bourses had tumbled overnight on reports Beijing wanted to cool the red hot rally in its equity markets, especially the tech sector, but Europe had a much smoother start.
The region’s STOXX 600 ticked up 0.3% as trading settled and the angst about rising long-term government borrowing costs in the likes of France, Britain and U.S. gave way to relative calm.
Oil prices extended their weak week after a Reuters report that OPEC+ officials were eyeing an increase in output targets at their meeting this weekend, while the dollar was in drift mode ahead of Friday’s crucial jobs report. [O/R][/FRX]
Several key Federal Reserve officials have bolstered expectations of an imminent Fed rate cut in recent days. Traders are now pricing in a near 100% chance that one will be delivered at the central bank’s next meeting on Sept. 17.
“The markets have become a little bit more convinced about a Fed rate cut this month, so that has put some modest downward pressure on bond yields,” MUFG’s global markets division head of research, Derek Halpenny, said.
He added that the Chinese equity market dip had weighed a little on the Aussie and Kiwi dollars in the FX markets, but otherwise it was largely a case of “consolidate and wait” for Friday’s payrolls numbers.
Europe’s bond buyers nudged the German 30-year bond yield down just over 1 basis point to 3.3%. France’s was down roughly the same at 4.45%, having hit 4.523% on Tuesday, its highest since June 2009 on worries its government could collapse again.
FALLING STAR
Overnight, MSCI’s broadest index of Asia-Pacific shares excluding those from Japan had ended 0.2% lower after a Bloomberg report that financial regulators were preparing cooling measures for the market.
Beijing bluechips fell as much as 2.6%, while the tech-heavy STAR 50 index, which soared nearly 30% last month, dropped more than 6% in its worst day since April.
Wall Street futures were pointing to an easy restart. [.N] Payrolls aren’t till Friday, but traders will get to hear the nomination hearing of Stephen Miran, U.S. President Donald Trump’s pick to replace resigning Fed board member Adriana Kugler.
“It’ll be interesting to hear senators’ questioning of Miran’s views on Fed independence,” Deutsche Bank’s Global Head of Macro Research, Jim Reid, said, given that Trump has moved to fire another Fed official, Lisa Cook, and has been repeatedly criticising Fed Chairman Jerome Powell.
In testimony posted to the Senate Banking Committee’s website on Wednesday ahead of Thursday’s hearing, Miran said he intended to “preserve” that independence.
With all the focus the independence issues have created on already sky-high government debt levels, there was relief that an auction of 30-year Japanese bonds had gone smoothly in Tokyo overnight.
Australian shares advanced 1%, recovering from their biggest one-day sell-off since April, while the Nikkei 225 ended 1.5% higher. [.T]
“We got one or two days of weakness but the dip-buyers have stepped in,” Tony Sycamore, market analyst at IG in Sydney, said.
India’s benchmark Sensex rose 1% as markets reopened, after the government slashed levies on several goods to fire up consumption and counteract U.S. tariffs.
Wednesday’s Federal Reserve’s “Beige Book” had painted a mixed picture of U.S. economic health, which appeared to underscore monetary policymakers’ concerns. Analysts at ING called it quite “bleak” and said it was “littered with” tariff warnings on prices.
The yield on benchmark 10-year Treasury notes inched down to 4.2% in European trading with the more rate-sensitive 2-year yield just above 3.6%.
The dollar edged up 0.1% against the yen at 148.25, keeping within the trading range where it has stayed since the beginning of August.
It was also fractionally higher against the euro at $1.1650. In commodities markets, Brent crude dipped 0.6% to $67.17 a barrel and gold edged back 0.8% after hitting a record high of 3,578.5 an ounce on Wednesday. [GOL/]
(Additional Reporting by Gregor Stuart Hunter in Singapore; Editing by Andrew Heavens)
