By Wayne Cole
SYDNEY – Asian stock markets fell on Monday after worries about a possible U.S. recession weighed on Wall Street, but U.S. stock futures rebounded from early losses and bond yields recovered from their lowest levels.
Chinese consumer price data showed the Asian giant remains the driving force behind global deflation, with producer prices falling 1.8% in August compared with analysts’ expectations of a 1.4% decline.
The consumer price index also rose less than expected this year, at 0.6%, though food prices rose almost entirely, with commodity prices rising just 0.2%, signaling weak domestic demand.
The decline in technology stocks has borne the brunt of the selling, sending Japan’s Nikkei stock average down another 2.4 percent after falling nearly 6 percent last week. (.T)
MSCI’s broadest index of Asia-Pacific shares ex-Japan fell 1.2 percent after dropping 2.25 percent last week, while South Korea’s market slid 1.3 percent.
On a brighter note, S&P 500 futures and Nasdaq futures both rose 0.2% after Friday’s declines, EUROSTOXX 50 futures rose 0.3% and FTSE futures rose 0.5%.
Federal funds futures fell as investors worried that a mixed U.S. August employment report would prompt the Federal Reserve to cut interest rates by as much as 50 basis points when it meets next week.
So far, markets have been suggesting a 33% chance of a big rate cut, driven in part by comments on Friday from Fed Governor Christopher Waller and New York Fed President John Williams, although Waller left the option of aggressive easing open.
“The data suggests the labour market remains weak, but there are no signs of a rapid deterioration that would warrant a 50 basis point rate cut,” Barclays economist Christian Keller said.
“Importantly, the Fed’s communications show no appetite for this,” he added. “Our view remains that the Fed will start the cycle with a 25 basis point cut and then cut rates by another 25 basis points over the remaining two meetings this year, for a total of 75 basis points of cuts next year.”
Investors are more dovish, pricing in 113 basis points of easing by Christmas and a further 132 basis points by 2025.
U.S. Consumer Price Index data for August due on Wednesday will likely underscore the need for a rate cut, however large, as headline inflation is expected to slow to 2.6% from 2.9%.
On Tuesday, Democrat Kamala Harris and Republican Donald Trump will debate for the first time ahead of the Nov. 5 presidential election.
ECB to ease
Markets are also fully pricing in a quarter-point rate cut from the European Central Bank on Thursday, but are less certain about further easing in October and December.
“Guidance beyond September will be crucial as pressure will be on both sides,” TD Securities analysts said in a note.
“Wage growth and services inflation remain strong, encouraging hawks, while growth data has weakened, encouraging doves,” they added. “A quarterly rate cut is likely more in line with the new forecast.”
Bonds rose on the prospect of global monetary easing, with 10-year Treasury yields hitting their lowest level in 15 months and two-year Treasury yields hitting their lowest since March 2023.
The bond market saw profit-taking on Monday, with the two-year yield rising to 3.690% and the 10-year yield rising to 3.743%, but the yield curve was still near its steepest level since mid-2022.
The yen also gave up some of its gains, with the dollar rising 0.4% to 142.7 yen, down from Friday’s low of 141.75 yen. The euro traded at $1.1086 after rising as high as $1.1155 on Friday. (USD/)
In commodity markets, a downward trend in bond yields kept gold at $2,497 an ounce, below its recent all-time high of $2.531. (GOL/)
Crude oil prices found some support after posting their biggest weekly drop in 11 months last week amid ongoing concerns about global demand. (O/R)
Brent crude rose $1.01 to $72.07 a barrel, while U.S. crude rose $1.02 to $68.69 a barrel.
This article has been generated from an automated news agency feed without any modifications to the text.