MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.06% higher
Gold prices jumped to record high and the dollar was on the rise again on Wednesday, keeping the pressure on the yen and the euro, while stocks in Asia tumbled as investors were reluctant to place major bets ahead of U.S. election.
The shifting expectations around how fast and deep the Fed will reduce rates have also hurt risk sentiment, with traders now anticipating the U.S. central bank to be measured in its easing.
That has taken U.S. Treasury yields to a three-month high and the dollar to multi-month highs against the euro, sterling and the yen, which is now back at 150 per dollar levels, prompting warnings from Japanese officials.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.06% higher. Tokyo’s Nikkei was marginally down in early trading.
Volatility within a range bound trade is increasingly becoming the norm, as markets brace for pivotal weeks ahead, including the U.S. presidential election and a heavy corporate earnings agenda, according to Anderson Alves, a trader with ActivTrades.
China and Hong Kong stocks made a steady open of trade on Wednesday, as the promise of government help for the economy supported the major indexes to settle in at higher levels.
Shifting momentum towards a likely Donald Trump presidency has been in focus for investors, with Trump policies including tariffs and restrictions on undocumented immigration expected to increase inflation. That in turn has supported the dollar on expectations U.S. rates may remain relatively high for a longer-than-anticipated period.
The yield on benchmark U.S. 10-year notes was 4.216% in Asian hours after hitting a three-month high of 4.222% in the previous session.
The Treasury sell-off has deepened this week as markets acknowledge that the Fed risks reigniting inflation if it eases into a strong economy, according to Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.
Trump’s improving election odds are also tempering market expectations for the Fed to continue easing into 2025 and the possibility of the Federal Reserve moving to the sidelines for six months next year cannot be ruled out, he said.
Markets are currently pricing in 41 bps of cuts for the year, with another 100 basis points priced in for next year.
Traders anticipate the Fed to cut borrowing costs by 25 basis points next month, having tempered their wagers of a bigger cut in the wake of strong economic data. The Fed started its easing cycle with a 50 basis point cut in September.
