The Nub
Asian markets extended the global stocks selloff on Wednesday, as investor worries about aggressive monetary tightening were inflamed further by strong US jobs data. The overnight JOLTS report on job openings – closely watched by the Federal Reserve – pointed to extremely tight labour conditions, defying the Fed’s tightening efforts so far and bolstering the case to do more.
Why Does it Matter
To discourage speculation about rate reductions next year, New York Fed president John Williams said on Tuesday that the central bank likely needed to get the policy rate above 3.5%, and was unlikely to cut rates at all in 2023. US equity futures though pointed to some respite, with S&P 500 e-minis indicating a 0.3% rebound from the index’s 1.1% slide on Tuesday. Investors will now be even more attentive to the monthly US jobs report on Friday. Earlier on Tuesday, data showed German inflation rose to its highest in almost 50 years in August, strengthening the case for the European Central Bank to also go for a super-sized rate hike next month.
What Next
Money markets currently place 68.5% odds of a 75 basis-point increase by the Fed on 21 September. The two-year US Treasury yield, which is relatively more sensitive to the monetary policy outlook, hit a fresh 15-year high at 3.497% overnight, but eased back to 3.4558% in Tokyo trading. The 10-year Treasury yield, which hit a two-month high of 3.153% on Tuesday, stood at 3.1137%. The dollar index, which measures the currency against six major peers, softened slightly to 108.69, after starting the week by marking a new two-decade high at 109.48. Gold was little changed at $1,723.62, hovering near a one-month low of $1,719.56, set on Monday. Crude oil rebounded from declines of more than $5 overnight, as industry data showed US fuel stocks fell more than expected. US West Texas Intermediate crude futures rose 64 cents to $92.28 a barrel in early Asian trading, after sliding $5.37 in the previous session driven by recession fears. Brent crude LCOc1 futures climbed 48 cents, or 0.5%, to $99.79 a barrel, trimming Tuesday’s $5.78 loss.
