European equity futures and Asian stocks retreated as an impasse in negotiations over raising the US debt ceiling hurt risk sentiment. The New Zealand dollar dropped after the central bank signaled its rate-hike cycle has peaked.
(Bloomberg) — European equity futures and Asian stocks retreated as an impasse in negotiations over raising the US debt ceiling hurt risk sentiment. The New Zealand dollar dropped after the central bank signaled its rate-hike cycle has peaked.
The MSCI Asia Pacific Index headed for its lowest close in a week, following losses of more than 1% for both the S&P 500 and Nasdaq 100 on Tuesday. Mainland China shares were close to wiping out this year’s gains on persistent concerns over geopolitics and economic growth. Contracts for European stocks declined after a 0.6% fall in the benchmark index Euro Stoxx 600 on Tuesday.
Yields on New Zealand bonds fell and the currency dropped more than 1% after the Reserve Bank of New Zealand hiked interest rates to 5.5%, in line with projections, while suggesting that rate cuts may begin in late 2024.
The last-hike signal by the RBNZ was a “big surprise,” said Jason Wong, a currency strategist at Bank of New Zealand. “Knee-jerk fall seems right as longs get stopped out,” he said of the kiwi.
It was a mixed picture in commodities as gold extended gains amid speculation the debt deadlock will boost demand for haven assets and oil climbed after the Saudi energy minister warned short-sellers of pain ahead. Copper rebounded after previously declining below $8,000 per ton for the first time since November on waning economic recovery in China.
A gauge of the US dollar was marginally lower after it touched a two-month high on Tuesday. The offshore yuan rebounded after slipping to the weakest level this year. The benchmark US 10-year yield was little changed at 3.68%.
Progress was limited in US debt negotiations on Tuesday. Speaker Kevin McCarthy left the US Capitol late in the afternoon saying the two sides had yet to reach a deal to avert a first-ever US default.
Investors have so far been demanding higher premiums to hold US debt, especially those at the highest risk of default, with little time left for politicians to find an agreement. Yields on securities maturing June 6 topped 6% Tuesday compared to bills maturing May 30 that are yielding about 2%.
“The market is now at the point where it wants a little less conversation, a little more action,” Tony Sycamore, a market analyst at IG Australia, wrote in a note. “The continued impasse is now viewed as bad news and overnight generated a traditional risk-off response of lower equities and a higher US dollar.”
Further short-term gains in the greenback will also depend on the release of the Federal Open Market Committee meeting minutes due later Wednesday, he said.
Key events this week:
- Fed issues minutes of May 2-3 policy meeting, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- US initial jobless claims, GDP, Thursday
- Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
- Tokyo CPI, Friday
- US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 6:52 a.m. London time. The S&P 500 fell 1.1%
- Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 1.3%
- Euro Stoxx 50 futures fell 0.6%
- Japan’s Topix index fell 0.4%
- Hong Kong’s Hang Seng Index fell 1.1%
- China’s Shanghai Composite Index fell 0.7%
- Australia’s S&P/ASX 200 Index fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.1% to $1.0785
- The Japanese yen rose 0.2% to 138.28 per dollar
- The offshore yuan rose 0.2% to 7.0533 per dollar
- The Australian dollar fell 0.2% to $0.6599
- The British pound rose 0.2% to $1.2438
Cryptocurrencies
- Bitcoin fell 1.7% to $26,765.82
- Ether fell 1.6% to $1,825.4
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.68%
- Japan’s 10-year yield was little changed at 0.40%
- Australia’s 10-year yield declined three basis points to 3.62%
Commodities
- West Texas Intermediate crude rose 1.2% to $73.77 a barrel
- Spot gold rose 0.2% to $1,978.51 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Yumi Teso and Matthew Burgess.
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