Global markets pause to ponder New Zealand rate hike

London — Asian stocks clung to two-week highs on Wednesday, though another aggressive rate increase from New Zealand tempered the idea that central banks may be close to slowing down the pace of rapid monetary tightening.

Oil prices were little changed before a meeting of Opec+ producers to discuss a big cut in crude output after gaining more than 3% in the previous session.

Asian shares rallied, but European equity markets opened broadly lower and US equity futures pointed to a weak start for Wall Street.

The S&P 500 index posted its biggest single-day rally in two years on Tuesday after softer US economic data and a smaller-than-expected interest rate hike from Australia stirred hope for less aggressive tightening by the Federal Reserve.

Yields on 10-year US Treasuries, which move inversely to prices, meanwhile are down 12 basis points just this week, as hopes for a slowdown in rapid tightening by the Fed took hold.

But a more cautious tone surfaced on Wednesday, with a sharp rate rise in New Zealand dampening hopes for a pause or slowdown in aggressive hikes from other major central banks.

Maximilian Kunkel, chief investment officer for Germany and global family and institutional wealth at UBS, said talk of rate hikes slowing down was premature.

“To us, especially when we think about central bank actions, it is too early to call for the Fed to pause imminently,” he said. “We need indications of a clear downtrend in US inflation … and further signs of a cooling of the labour market. And we’re not there yet.”

European shares fell, after rallying more than 5% in the previous three sessions. Europe’s broad Stoxx 600 index was down 1%, while blue-chip indices in London, Paris and Frankfurt were down as much as 0.5%.

The MSCI’s broadest index of Asia-Pacific shares outside Japan was up 2.3%, after US stocks ended the previous session with gains. That left the MSCI’s World Stock Index up about 0.2%, having touched its highest level in about two weeks earlier in the session.

Waiting for Opec+

Investors closely awaited a crucial supply decision from Opec+ due later on Wednesday, which could have global implications for already high energy prices and inflation.

After making strong gains the previous day, US crude was flat at $86.60 a barrel and Brent was just 0.1% firmer at $91.86.

The grouping of oil producers could cut between 1-million and 2-million barrels a day, according to Reuters.

US Treasury yields headed higher and the dollar steadied, having suffered its heaviest setback in more than two years on Tuesday. The yield on benchmark 10-year Treasuries were about 7 basis points higher at 3.69%.

The dollar was 0.2% firmer at 144.40 yen, while the euro was about 0.4% softer at $0.9945, having gained 1.7% on Tuesday in its biggest one-day percentage gain since March.

“Despite European assets rebounding quite sharply, it’s hard to point to any material change in the eurozone’s outlook that would warrant a significant return of market appetite for the euro just yet,” said ING currency strategist Francesco Pesole.

Spot gold traded at about $1,713/oz, down about 0.75%.

Reuters

Source: businesslive.co.za