Australia’s dollar jumped after the central bank unexpectedly raised interest rates to combat inflation. Asian stocks fluctuated as traders assessed China data and weighed risk before a Federal Reserve meeting this week.
(Bloomberg) — Australia’s dollar jumped after the central bank unexpectedly raised interest rates to combat inflation. Asian stocks fluctuated as traders assessed China data and weighed risk before a Federal Reserve meeting this week.
The Aussie gained as much as 1.2%, while the policy-sensitive the three-year government note yield jumped 21 basis points as the Reserve Bank of Australia hiked its benchmark rate by 25 basis points to 3.85%. The RBA said inflation remained too high and some further tightening of monetary policy may be required. Shares in Australia extended losses.
“The RBA’s hike today is likely to ramp up the market’s hawkish expectations for the Fed this week as RBA is one of the G-10’s least hawkish central banks and has shown the inflation fight is not over,” said David Forrester, strategist at Credit Agricole CIB in Singapore.
Others are more skeptical that the RBA decision will influence the Fed.
“The RBA are still playing catchup with a much more hawkish Fed, and odds already favor a 25 basis-point Fed hike irrespective RBA’s decision to tighten today,” said Matt Simpson, a senior market analyst at City Index in Sydney.
Swap traders have slightly upgraded the odds the Fed will raise its policy rate by a quarter point Wednesday, but now only expect rate cuts to happen in the later part of this year.
Choppy Trading
US stock futures were little changed while those for Europe gained. MSCI Inc.’s Asia Pacific Index of shares swung between gains and losses in a choppy trading as traders parsed a surprise contraction in China manufacturing against upbeat holiday spending data. Chinese markets are shut Tuesday and will reopen Thursday after a five-day holiday.
Bloomberg’s dollar index fell, while Treasuries edged up in Asia after being sold across the curve Monday.
China’s official manufacturing purchasing managers’ index fell to 49.2 in April, according to data released Sunday, feeding concern the economy may struggle to sustain growth momentum. Still, initial data from the Golden Week holiday showed strong travel, shopping and casino spending.
Payment misses by Chinese developers added to the cloudy outlook, with a gauge of real estate companies dropping 1.8%.
Shares of HSBC Holdings Plc jumped after the lender reported a pretax profit that beat estimates as it tripled to $12.89 billion in the first quarter. The bank also announced a $2 billion buyback as part of a plan to return money to shareholders.
US Treasury Secretary Janet Yellen told lawmakers Monday that the nation risked default as soon as June 1. That came amid a high-stakes game of chicken in Washington over the debt limit.
“We see only a temporary rise in selected Treasury bill yields as the date nears when the US Treasury might run into trouble making payments or need to prioritize debt payments over other obligations,” a team of strategists at BlackRock Investment Institute, including Jean Boivin, wrote in a note. “Still, we could see market volatility and risk assets come under pressure as in past episodes.”
Elsewhere, oil and gold were little changed.
Key events this week:
- US JOLTS job openings, factory and durable goods orders, Tuesday
- ADP employment, S&P global US services PMI, ISM services, Wednesday
- Fed Chair Jerome Powell holds news conference following rate decision, Wednesday
- US initial jobless claims, trade balance, Thursday
- European Central Bank rate decision, followed by ECB President Christine Lagarde’s news conference, Thursday
- US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 6:30 a.m. London time. The S&P 500 was little changed
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.1%
- Euro Stoxx 50 futures rose 0.2%
- Japan’s Topix index fell 0.2%
- Hong Kong’s Hang Seng Index rose 0.6%
- Australia’s S&P/ASX 200 index fell 1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.1% to $1.0992
- The Japanese yen fell 0.1% to 137.67 per dollar
- The offshore yuan rose 0.2% to 6.9496 per dollar
- The Australian dollar rose 1.1% to $0.6704
- The British pound was little changed at $1.2505
Cryptocurrencies
- Bitcoin rose 1% to $27,954.25
- Ether rose 1.1% to $1,827.6
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.56%
- Japan’s 10-year yield advanced two basis points to 0.42%
- Australia’s 10-year yield advanced 12 basis points to 3.47%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott and Ruth Carson.
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