Unbridled dollar pauses for breath as bears stalk stocks

HONG KONG, Sept 27 (Reuters) – Asian markets tried to stabilize on Tuesday after a wild couple of days in which most assets except for the dollar fell, the greenback weakened somewhat and stocks were flat.

Sterling, which fell to a record low of $1.0327 on Monday, recovered to $1.0772. S&P 500 futures were up 0.7% and Europe futures were up 0.6%.

MSCI’s broadest index of Asian stocks outside of Japan (.MIAPJ0000PUS) fell 0.3%, the smallest drop in five consecutive losing sessions, though it hit another two-year low. Japan’s Nikkei rose 0.5%.

But analysts cast doubt on the prospects as markets – already jittery at the prospect of US interest rates staying higher for much longer – were unsettled by the turmoil in UK assets in response to the government’s spending plans.

Britain plans tax cuts on top of huge energy subsidies and a lack of confidence in the strategy and its funding hit gilts and the pound on Friday and again on Monday.

The five-year gilt yield has risen an impressive 100 basis points in two trading days.

“(It) is definitely something unfolding…probably we’re only at a certain early stage of seeing how the market digests this kind of information,” said Yuting Shao, macro strategist at State Street Global Markets.

“Of course, the tax cut plan itself was really aimed at boosting growth and easing the burden on budgets, but it raises the question of what the monetary policy implications are.”

After the pound tumbled, the Bank of England said it would not hesitate to change interest rates and was monitoring markets “very closely”. Continue reading

Bank of England chief economist Huw Pill is due to speak on a panel at 11:00 GMT and is likely to push for more details.

BEAR TERRITORY

Raids from the UK kept other assets busy.

Bond selling in Japan pushed yields up to the Bank of Japan’s ceiling and prompted further unscheduled central bank purchases in response.

Wall Street tumbled deeper into a bear market Monday, benchmark 10-year Treasury yields rose more than 20 basis points to a 12-year high of 3.933% and the dollar was bid.

“There could easily be another downtrend as classic signs of market capitulation, such as the VIX index hitting the key 40 level, have not materialized – although we are getting closer,” said Invesco Chief Strategist Kristina Hooper.

The VIX (.VIX), known as Wall Street’s “fear gauge,” hit a three-month high of 32.88 on Monday.

Investors are keeping an eye out for a series of speeches from central bank officials this week, including the Fed’s Charles Evans, who will speak at 07:30 GMT on Tuesday.

US Conference Board Consumer Confidence is expected to rise slightly to 104.5 from 103.2 later in the day.

The dollar index fell 0.2% to 113.71 on Tuesday after previously touching 114.58, its strongest level since May 2002.

The European single currency rose 0.3% on the day to $0.9636 after hitting a 20-year low a day ago.

Oil and gold caused losses. Gold, which hit a 2-1/2-year low on Monday, rose 0.6% to $1,631 an ounce. Oil rose slightly from its lowest level since January.

US crude rose 0.8% to $77.35 a barrel. Brent crude rose to $84.8 a barrel.

Bitcoin surpassed $20,000 for the first time in about a week on Tuesday as cryptocurrencies rebounded along with other risk-sensitive assets. Continue reading

Reporting by Xie Yu; Edited by Edmund Klamann and Muralikumar Anantharaman

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