Global Stock Rout Expands, Powering Bond Rally: Markets Close

(Bloomberg) — The global selloff deepened on Monday as concerns grew that the Federal Reserve is backing down on policy support for the weak US economy, sending investors to safety when bonds. Japanese shares fell for a third day as traders cut domestic prices.

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Japan’s Topix index fell more than 7%, while the yen rallied more than 1% on bets the Bank of Japan will keep raising interest rates after last Wednesday’s hike. Shares in Korea and Australia slipped, while US futures fell more than 1.5%. Because investors are concerned that the American economy may fall hard, the Treasury meeting sent yields to the lowest in more than a year.

The price action highlights how quickly sentiment has changed from expectations that the Fed will be able to do easy engineering for the US economy. Data on Friday showed that US non-farm payrolls recorded one of the weakest readings since the pandemic, and the unemployment rate rose above forecasts for the end of the Fed’s year, which caused a cautious recession.

“It’s really a case of a ‘catastrophe’ scheme, with the Bank of Japan signaling more tightening and the Fed likely to be too slow,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank of Singapore. “For now, though, fears of a recession and recession are conspiring to dampen risk appetite.”

Japanese stock indexes have dropped more than 20% – losses that indicate a bear market. The three-day losses are the worst since the 2011 tsunami and Fukushima meltdown.

After the Treasury meeting on Friday, Japan’s 10-year bond yield fell to its lowest level since April, sliding as much as 17 basis points to 0.785% on Monday. New Zealand yields fell by the same amount, while Australian bonds were closed for a bank holiday a day before the Reserve Bank of Australia’s policy meeting.

In practice, the extended loss of oil on Monday amid reports of Iran may hit Israel to avenge the killings of Hezbollah and Hamas officials. Saudi Arabian and Israeli stocks fell more than 2% on Sunday, outpacing Friday’s losses on Wall Street.

The escalating conflict in the Middle East could cause further turmoil in markets as investors prepare for a turbulent second half of the year. Bond market volatility has risen, while the VIX Index – Wall Street’s gauge of fear – has jumped to its highest level in nearly 18 months.

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Economic Decline

Investors worry the Fed’s decision to hold interest rates for two decades risks a major recession. Traders estimate the Fed will cut rates by more than a full percentage point in 2024, with an additional 50 basis point cut in September, according to data compiled by Bloomberg.

“With the unemployment rate above and PCE inflation below the Fed’s year-end projections, we believe the balance of risks favors stronger Fed action,” said Brian Rose, analyst at senior US economist in the wealth management department of UBS Group AG. . “We are changing our base case to reduce the reduction of 50 basis points in September and 25 basis points in November and December” after we did not see half of that amount at the end of the year, he wrote in a letter to clients .

Bond traders have repeatedly misjudged the direction of interest rates since the end of the pandemic, however, sometimes falling in both directions and getting caught when A recession is a recession or inflation that defies expectations. At the end of 2023, bond prices also rose on the belief that the Fed was about to begin an easing policy, only to reverse those gains as the economy continued to show surprising strength.

Elsewhere in Asia, traders will be watching China’s economy after the government on Saturday set priorities to encourage consumer spending as weak domestic demand continues weight bearing. Caixin China’s private sector services and aggregate activity data is expected later on Monday after unexpectedly contracting PMI last week for the first time in nine months.

Highlights this week:

• The Bank of Japan released the minutes of its June meeting on Monday

• China Caixin services PMI, Monday

• Indonesia GDP, Monday

• Singapore retail sales, Monday

• Thailand CPI, Monday

• Eurozone PPI, HCOB Services PMI, Monday

• US ISM Services index, Monday

• Chicago Fed President Austan Goolsbee speaks, Monday

• San Francisco Fed President Mary Daly speaks, Monday

• Australian rate decision, Tuesday

• Japan’s cash prize, Tuesday

• Philippines CPI, business, Tuesday

• Eurozone retail sales, Tuesday

• US Business, Tuesday

• Unemployment in New Zealand, Wednesday

• China business, Wednesday

• Chile copper exports, business, Wednesday

• US consumer credit, Wednesday

• ECB Supervisory Board member Elizabeth McCaul speaks, Wednesday

• RBA Governor Michele Bullock speaks on Thursday

• Philippines GDP, Thursday

• India rate decision, Thursday

• First US unemployment reports, Thursday

• Richmond Fed President Thomas Barkin speaks on Thursday

• Chile CPI, Thursday

• Colombia CPI, Thursday

• Mexico CPI, rate decision Thursday

• Rate decision in Peru, Thursday

• China PPI, CPI, Friday

• German CPI, Friday

• Canadian unemployment, Friday

• Brazil CPI, Friday

Some of the main movements in the markets:

Stocks

• S&P 500 futures were down 1.4% as of 9:19 a.m. Tokyo time

• Hang Seng Futures fell 0.4%

• Japan’s Topix down 7.6%

• Australia’s S&P/ASX 200 fell 2.5%

• Euro Stoxx 50 futures fell 2.8%

Finances

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0916

• The Japanese yen rose 0.9% to 145.24 per dollar

• The foreign yuan rose 0.3% to 7.1431 per dollar

• The Australian dollar fell 0.4% to $0.6487

Financial statements

• Bitcoin is down 2.1% at $57,902.01

• Ether is down 2.6% at $2,679.89

Obligations

• The yield on 10-year Treasuries fell six basis points to 3.73%

• Japan’s 10-year yield fell 14 basis points to 0.815%

• Australia’s 10-year yield fell four basis points to 4.05%

Goods

• West Texas Intermediate crude rose 0.1% to $73.62 a barrel

• Spot gold was down 0.9% at $2,422.41 an ounce

This story was produced with the help of Bloomberg Automation.

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