European Futures Slip Before US Data, Dollar Falls: Markets Wrap

(Bloomberg) — European stock futures fell on a bumpy day for Asia, as investors weigh the risks to global markets after a volatile week when policy decisions by central banks raised uncertainty.

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Euro Stoxx 50 contracts slid 1% and those for US shares fell 0.2%. MSCI’s Asia-Pacific Index dropped, with Japan’s Topix Index declining again after rebounding from earlier losses. Benchmarks in China and Hong Kong gained and those in Korea and Australia declined. The dollar weakened against major currencies, including the yen.

A Thursday summary of opinions from last week’s Bank of Japan meeting, when it raised rates, showed one member identify the neutral rate at 1%, while another called for timely rate increases to avoid rapid hikes. Investors are watching for US jobless claims data Thursday to get more cues.

Global markets have been rocked in the past week as investors prepare for the US and Japanese central banks to move in opposite directions, in turn undermining the yen’s role as a cheap source of funding for financial assets. Markets have been in a tailspin since weak economic data last week fueled worries that the Fed’s decision to hold rates at a two-decade high is risking a deeper economic slowdown.

It is “consolidation period before any new trend, given how volatile the market has been,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “Investors probably will stay sidelined until new data appear. The next couple of days will be crucial — either calm returns, or we see a new bout of volatility emerge.”

Three-quarters of the carry trade has been unwound as the recent slump wiped out all positive year-to-date returns, according to strategists at JPMorgan Chase & Co.

The carry strategy — which involves borrowing at low rates to fund purchases in higher-yielding assets elsewhere — has been wobbling for months. Carry trades were pummeled over the past week as global market volatility jumped amid fears of rapid Federal Reserve rate cuts and after the Bank of Japan’s larger than expected rate hike.

The unspooling of the carry trade has further room to run but the declining velocity of the shift allows investors to breathe “a sigh of relief,” according to Quincy Krosby at LPL Financial. “A softer dollar, driven by the markets perception that the Fed will soon initiate an easing cycle, should help support a stronger yen — a negative for the trade.”

The dollar was weaker Thursday, reversing moves from the prior session. Lackluster demand for a 10-year Treasury auction and $31.8 billion in debt offerings from blue-chip companies were headwinds.

The Treasury auction result is “consistent with our view that we’re due for a continued correction higher in yield in the near-term,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. “The repricing following what was really just a moderately weak payrolls report seems way overdone.”

Lasertec shares surge as much as 23%, the most since January 2015, after the Japanese semiconductor company reported strong fourth quarter results from record orders.

Oil steadied after its biggest advance in a week, with the market on edge over a possible retaliatory strike by Iran on Israel as payback for assassinations of Hamas and Hezbollah leaders.

Key events this week:

• Germany industrial production, Thursday

• US initial jobless claims, Thursday

• Fed’s Thomas Barkin speaks, Thursday

• China PPI, CPI, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.2% as of 6:41 a.m. London time

• Japan’s Topix fell 1.2%

• Australia’s S&P/ASX 200 fell 0.4%

• Hong Kong’s Hang Seng rose 0.1%

• The Shanghai Composite was little changed

• Euro Stoxx 50 futures fell 1.1%

• Nasdaq 100 futures fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro was little changed at $1.0931

• The Japanese yen rose 0.4% to 146.06 per dollar

• The offshore yuan rose 0.3% to 7.1694 per dollar

• The Australian dollar rose 0.5% to $0.6551

• The British pound was unchanged at $1.2692

Cryptocurrencies

• Bitcoin rose 3.1% to $56,878.24

• Ether rose 3.3% to $2,427.73

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.91%

• Japan’s 10-year yield declined 1.5 basis points to 0.860%

• Australia’s 10-year yield was little changed at 4.08%

Commodities

• West Texas Intermediate crude rose 0.2% to $75.41 a barrel

• Spot gold rose 0.4% to $2,393.02 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi.

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