After US inflation came in stable on Friday, devoid of the anticipated surprise on the downside, Asian markets teetered on a weekly loss, and the US currency appeared poised to post a month of gains.
Asia stocks slip: Bonds suffered from weak demand at a 30-year Treasury auction and a ballooning US budget deficit last month. Bonds’ higher rates in turn drove up the dollar, especially against a yen that was restrained by yield control in Japan.
Early on Friday, the yen fell to a six-week low against the dollar, albeit volumes were light due to a national holiday in Japan.
Its stock markets were closed, and throughout the Asia session, no Treasuries were traded.
The largest MSCI index of Asia-Pacific shares outside of Japan dipped 0.2%, heading for a weekly loss of 1%.
Headline The US CPI was 0.2% last month, the same as a month earlier, and the specifics were positive, with only rents staying stubbornly stuck and core goods inflation dropping down.
A few hours later, though, San Francisco Fed President Mary Daly told Yahoo Finance that although this was positive, policymakers still had “more work to do.”
Market Reacts to Inflation Data and US Treasury Dynamics: Impact on Yields and Investor Sentiment
According to Andrew Lilley, chief rates strategist at investment bank Barrenjoey in Sydney, “the market was hoping with that inflation data that we’d hear Fed speakers say it’s unlikely we’ll have to hike any further, and the next move is a cut.”
Benchmark 10-year The inflation news originally caused Treasuries to rise, but at the end of New York trading, yields were seven basis points higher at 4.11%. The two-year yield increased by two basis points to 4.82%.
After a $23 billion auction came in a basis point over where the market was trading, 30-year rates increased by six basis points to 4.24%. 12.5% of the transaction was left over for primary dealers.
That increased worries that the markets are finding it difficult to comprehend the US Treasury’s new, noticeably greater supply story, according to Sally Auld, chief investment officer at wealth manager JB Were in Sydney.
The US budget deficit for July came in at $221 billion, exceeding market expectations and pushing the year-to-date deficit past $1.6 trillion (compared to less than half of that a year earlier). This momentum suggests that there will be additional borrowing in the future.
monetary gains
In foreign exchange markets, choppy trade in the wake of the inflation data release left the dollar on course for a weekly gain as traders figured that one certainty is that US rates will not be going down for a while.
The euro is down marginally for the week at $1.0988.
The yen was eyeing a weekly loss of 2% as traders judged the Bank of Japan’s looser cap on 10-year yields as buying time for shorter-dated rates to stay low.
Chinese real estate equities were suffering new losses on the stock markets as a result of Country Garden, a massive developer that is having trouble paying its debts and has predicted a $7.6 billion net loss for the first half of the year.
Stock in Country Garden dropped 11%.
A mainland developer index decreased 2.3% to a level not seen in nearly three weeks.
Following the e-commerce behemoth’s announcement of its biggest quarterly sales in two years, Alibaba’s Hong Kong shares increased by 3.8%. Flat was the larger Hang Seng.
After obtaining tax breaks from the state of New South Wales, Star Entertainment, an Australian casino operator in trouble, saw a 20% increase in share price.
The possibility of a strike on Australian gasfields has caused European petrol prices to surge on commodity markets.
Chevron and Woodside are in discussions with employees at the plants that produce 10% of the world’s liquefied natural gas regarding compensation and working conditions.
At $86.67 a barrel, Brent crude futures appeared to close the week unchanged.
Later on Friday, reports on US consumer confidence and British economic growth are expect.