Asian stock markets got a cautious start on Monday as a flurry of US soft data suggested downside risks to this week’s June payrolls report, while recession buzz was on the horizon. still driving the rise of government bonds.
The search for safety kept the US dollar near 20-year highs, although the initial action was mild with US markets taking a break.
Cash Treasuries closed but futures extended their gains, implying the 10-year yield is holding around 2.88%, having fallen 61 basis points from the June peak.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.3 percent, while Japan’s Nikkei gained 0.9 percent.
However, both the S&P 500 and Nasdaq futures fell 0.4%, after stabilizing only slightly on Friday.
David J Kostin, an analyst at Goldman Sachs, noted that every bar energy in the S&P 500 industry posted negative returns in the first half of the year amid high volatility.
He added: “The current bear market is based purely on valuation and not as a result of earnings estimates.
“However, we believe that a decrease in consensus margin forecast will lead to a decline in EPS [earnings per share] revise whether the economy falls into a recession”.
Earnings season kicks off on July 15, and expectations are being ticked lower due to high costs and falling data.
Technical recession
The Atlanta Federal Reserve’s much-watched GDP Now forecast fell to a -2.1% annualized rate in the second quarter, implying that the country has slipped into a technical recession.
Friday’s payrolls report is forecast to show job growth slowing to 270,000 in June, with median earnings slowing to 5%.
However, the minutes of the Fed’s June policy meeting on Wednesday were almost certainly hawkish as the committee chose to raise rates by a micro-75 basis points.
The market is pricing in about an 85% chance of another 75 basis point increase this month and interest rates at 3.25-3.5% year-end.
“But the market has also turned to price in an increasingly positive record of rate cuts for the Fed in 2023 and 2024, consistent with the growing likelihood of a recessionAnalysts at NAB note.
“The Fed cuts of around 60bps are now priced into 2023.”
In currencies, investor demand for the most liquid safe harbor tends to benefit the US dollar, near two-decade highs against a basket of competitors at 105.04.
The euro was flat at $1.0433 and not far from the recent five-year low of $1.0349. The European Central Bank is expected to raise interest rates this month for the first time in a decade and the euro could be lifted if it decides on a more aggressive half-point move.
The Japanese yen also attracted some safe-haven outflows late last week, pulling the dollar back to 135.00 yen from a 24-year high of 137.01.
A high dollar and rising interest rates are not the sort for unprofitable gold, which was pegged at $1,808 an ounce after hitting a six-month low last week.
Fears of a global recession also undermined the industrial metal with copper hitting a 17-month low, down 25% from its March peak.
Oil has generally outperformed due to supply constraints, and the conflict in Ukraine has offset demand concerns. Production restrictions in Libya and a planned strike among Norwegian oil workers are just the latest blows to production.
However, sellers were absent early Monday and Brent fell 34 cents to $111.29, while US crude fell 23 cents to $108.20 a barrel.
