Dollar takes a break as stocks seek direction: Markets wrap

The greenback steadied and stocks traded mixed amid elevated oil prices that reignited concerns over inflation.

The dollar traded in a tight range against its Group-of-10 peers and remained near the highest since March as Treasury yields pushed up across tenors on Tuesday on the back of heavy corporate bond deals in global high-grade markets. Treasuries steadied during Asian trading.

The dollar’s earlier strength had prompted Japan’s top currency official Masato Kanda to say Wednesday he wouldn’t rule out any options if currency moves continue. The Chinese central bank also moved to defend the yuan with another record strongest daily fixing, setting a stronger-than-expected fixing everyday since late June. The yen held on to modest gains, while the offshore yuan edged lower.

Asian stocks traded mixed, with benchmark indexes falling in Hong Kong and mainland China, but rising in Japan for an eighth day. Chinese property developers extended their gains to nearly 8% on speculations that more stimulus will come. European and US equity contracts edged lower following the decline in the S&P 500 to below 4,500 in the previous session while an index of small caps slid about 2% and a gauge of homebuilders sank 5.5%.

Meanwhile, West Texas Intermediate held near the highest since November and Brent stayed above $90 a barrel — after breaching the level Tuesday — as the largest OPEC+ producers extended their supply cuts to year-end. Oil’s recent gains pose a headwind for much of Asia, threatening economic growth and risk keeping interest rates high.

Brent may continue to trade high on the supply cuts, with the price expected to hover at $90 from now until year-end and at $95 in the first half of next year, according to Heng Koon How, head of markets strategy at United Overseas Bank in Singapore.

“A key risk to our forecast of higher prices is further economic weakness in China that may reduce energy demand,” he wrote in a note. “However, the immediate concern appears to be sticky global inflationary risks as energy prices climb anew.

Careful move

Traders will be looking at a slew of economic data from the US this month for clues on the Federal Reserve’s next rate decision.

Fed Governor Christopher Waller said policymakers can afford to “proceed carefully” with tightening given recent data showing inflation continuing to ease. “There is nothing that is saying we need to do anything imminent anytime soon,” Waller told CNBC. Meantime, Fed Bank of Cleveland President Loretta Mester said the central bank may need to raise rates “a bit higher,” but stopped short of saying what officials should do at their next meeting.

“This higher-for-longer interest rate environment is going to last,” Eric Lynch, managing director at Scharf Investments, said on Bloomberg Television. “The only way to kind of crack this core inflation above 4%, and now we’ve got oil coming back, is to continue slowing down the economy.”

JPMorgan Chase & Co.’s Marko Kolanovic reiterated Tuesday that investors should fade the artificial-intelligence induced stock-market rally, arguing that he would turn more optimistic on equities if interest rates begin falling globally in the near term. Meantime, Morgan Stanley’s Michael Wilson said US equity investors are in for disappointment as economic growth is set to be weaker than expected this year.

Elsewhere, gold was little changed after declining the most in more than a month in the previous session.

Key events this week:

Eurozone retail sales, Wednesday
Germany factory orders, Wednesday
US trade, ISM services index, Wednesday
Canada rate decision, Wednesday
Bank of England Governor Andrew Bailey testifies to the UK parliament’s Treasury Select Committee, Wednesday
Federal Reserve issues Beige Book economic survey, Wednesday
Boston Fed President Susan Collins speaks, Wednesday
Dallas Fed President Lorie Logan speaks, Wednesday
China trade, forex reserves, Thursday
Eurozone GDP, Thursday
US initial jobless claims, Thursday
Bank of Canada Governor Tiff Macklem to speak on the Economic Progress Report, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
New York Fed President John Williams participates in moderated discussion at the Bloomberg Market Forum, Thursday
Japan GDP, Friday
Germany CPI, Friday
US wholesale inventories, consumer credit, Friday