After a collapse last week in stock market, European equities slightly increased on Monday. In contrast, longer-dated U.S. Treasury rates increased to a fresh 12-year high as oil prices firmed despite China’s policy easing being less pronounced than investors had anticipated.
The one-year loan rate was reduced by 10 basis points by China’s central bank, while the five-year rate remained unchanged. That caught experts off guard because they had predicted reductions of 15 basis points for both as the recovery in the second-largest economy in the world has slowed down as a result of a deepening real estate downturn, subpar consumer spending, and deteriorating credit growth.
According to Susannah Streeter, head of money and markets at Hargreaves Lansdown, “the small injection of stimulus by China’s central bank in the ailing economy has proven largely underwhelming given the scale of the challenges erupting across sectors, but it has given investors hope there could be more to come.”
The scale and extent of rate cuts are likely being constrained by worries about downward pressure on the yuan, which has fallen roughly 6% versus the dollar this year, according to analysts.
China’s decision and stock market reflection
Although disappointment caused Asian equities to decline on Monday stock market, European shares increased, and U.S. stock futures also suggested a comeback there. NQc1, ESC
Following a 2.3% decline the previous week, Europe’s STOXX 600.STOXX index was up 0.7% at 1207 GMT, with energy firms outperforming other sectors as rising oil prices and tightened Saudi Arabian production offset concerns over demand.
The reflection is even more
After ending a seven-week winning streak last week due to worries over Chinese demand, oil prices increased by as much as $1 this week. U.S. oil CLc1 was recently at $82.37 a barrel, while Brent crude was at $85.74 per barrel.
In the bond markets, a selloff that had driven up the cost of government borrowing to their highest level in more than ten years gained momentum on Monday.
U.S. Treasury rates on longer maturities increased by 5-7 basis points, with the 30-year yield reaching a new 12-year high of 4.44%. Bond yields, US30YT=RR, fluctuate in opposition to price changes.
People awaiting Powell’s words
Seema Shah, the chief global strategist at Principal Global Investors, observed that “people are starting to get concerned about the (bond) selloff and are looking ahead to (Federal Reserve Chair Jerome) Powell and what he says later this week about peak rates.”
The U.S. Federal Reserve’s Jackson Hole conference is the main event of the week, and stock markets anticipate Powell to mention the rise in rates and the recent string of positive economic statistics. The GDP Now tracker from the Atlanta Fed is currently at an exhilarating 5.8% for this quarter.
The majority of the analysts surveyed believe the Fed has stopped raising interest rates, but traders are banking on a 40% possibility of one more Fed boost by November. FEDWATCH
Consequences of stock market down
The U.S. dollar, which has increased for five weeks thanks to increasing bond rates, fell 0.2% versus a basket of peers on Monday, falling just short of two-month highs reached on Friday. =USD
After losing 0.7% last week, the euro was up 0.3% versus the dollar this week.
After hitting a five-month low last week, gold was suffering from the strengthening of the dollar and rising yields at $1,894 per ounce (XAU=). GOL/
The possibility of a strike at Australian offshore facilities, which may have a 10% impact on supply globally, supported LNG prices.
Early trading saw the benchmark European TTF front-month wholesale gas contract TRNLTTFMc1 reach a high of 41 euros per megawatt hour, approaching the 43 euro top. It last increased 3.7% to 39 euros, up 42% this month.
Shares of Dutch payment processor Adyen ADYEN.AS fell as much as 7% as earnings were also in the news. As a result of Thursday’s disappointing reports, which prompted questions about the company’s valuation, the shares have lost roughly half of their value.
Another significant test of values will come on Wednesday with Nvidia’s NVDA.O earnings, the AI darling.