Morning Bid: Looking at the bright side of markets

A trader works on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, US, May 18, 2022. REUTERS / Andrew Kelly

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A look at the day ahead in markets from Sujata Rao

It’s a pretty eventful day in markets. US 10-year yields are back above 3%, lifting the dollar to two-week highs. Then, the yen plumbed new 20-year lows, Australia upped interest rates by a half-point and the pound has fallen after a ruling party confidence vote failed to dislodge Prime Minister Boris Johnson.

US and European equities are predictably under pressure.

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Yet, look behind the surface and there are some positives.

The yield boost is due in large part, not to a fresh upsurge in inflation fears, but in anticipation of the $ 96 billion in new Treasury bonds hitting markets this week.

More importantly, the China re-opening trade is in full swing, with Beijing following Shanghai’s example in further relaxing COVID curbs,

So Shenzen blue-chips are near seven-week highs, while US- listed Chinese shares are set for a fourth week of gains, lifted too by thawing trade ties with Washington.

JPMorgan (bullish on Chinese stocks) estimate that areas accounting for some 10% of Chinese GDP are now affected by lockdowns, versus 40% back in April.

In nearby Japan, the yen’s fall provoked verbal intervention again from finance minister Suzuki – its weakness was being monitored with “a sense of urgency” he said – a message diluted immediately by Bank of Japan governor Haruhiko Kuroda’s reiteration that ultra-easy monetary policy would continue.

But Kuroda is fast becoming an outlier. The Reserve Bank of Australia wrong-footed investors with a 50 basis-point rate hike, its biggest move in 22 years. Rates are now at 0.85%, and raising them to 2.5% – the level Governor Philip Lowe has previously flagged as Australia’s neutral rates – means a hectic tightening cycle is ahead read more.

Finally, UK PM Johnson will remain in Downing Street for now, having scraped through Monday’s vote. The pound is down 0.7% as attention focuses again on the dire state of the economy; Another sharp fall in UK retail sales means investors may be re-assessing how much longer the Bank of England can keep raising interest rates read more.

Key developments that should provide more direction to markets on Tuesday:

-Japan household spending falls faster than expected read more

-Final PMIs everywhere

-Euro zone Sentix index

-Chile to hike interest rates 75 bps to 9%

-Central Bank of Argentina meets

-US trade balance

-US 3-year note auction

Nerves and growth doubts linger as COVID rules lift
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Reporting by Sujata Rao

Our Standards: The Thomson Reuters Trust Principles.

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