Prior to the meetings of the Central Banks, Asian stocks rebound but run out of gas

Before central bank meetings, the dollar was strong, Asian markets slightly declined, and traders were on edge due to the uncertainty surrounding the supply of Russian gas.

Advertisement

On Thursday, the dollar held steady while Asian markets slightly declined as traders remained on edge due to upcoming central bank meetings in Europe and Japan as well as concerns about the supply of Russian gas.

Even better-than-expected numbers from Tesla after hours couldn’t carry the upbeat mood into the Asia session, despite the overnight gains on Wall Street indexes.

S&P 500 futures decreased by 0.2% and Nasdaq 100 futures dropped by 0.3%. Both the Nikkei 225 and MSCI’s broadest index of Asia-Pacific shares outside of Japan experienced declines of 0.2% and 0.1%, respectively.

Advertisement

The biggest pipeline from Russia to Germany is the focus of the market’s attention as gas flow has been stopped. At 4:00 GMT, a scheduled 10-day outage will come to an end. Worries over winter supplies will increase if flow doesn’t resume or is subpar.

According to two individuals familiar with Gazprom’s intentions, which controls the market for gas exports from Russia, flows were likely to resume at pre-maintenance levels of 40% of capacity on Tuesday. This would likely be sufficient to calm markets for the time being.

On Thursday, the European Central Bank holds a meeting to start the cycle of rate increases in Europe. The euro has fallen below $1 this month, and the markets are hedging their bets on a boost of either 25 basis points or 50 bps, with the latter perhaps being able to support it.

“They need to be raising rates to deal with the way inflation is embedded,” said George Boubouras, head of research at K2 Asset Management in Melbourne.

“But the dilemma they’ve got is that the lack of energy security planning has regions of the European Union in a very difficult position…one can only assume that you’ve got minimal upside and large downside risks to the European economy” he added.

Overnight fluctuations caused the euro to buy $1.0191 at the start of the Asian session. Traders are also eagerly awaiting information on an ECB proposal to stabilise bond spreads in Europe by purchasing additional debt from peripheral nations to keep yields under control.

Although no change in policy is anticipated, the outlook and the response in the currency and bond markets, where some funds have gambled on a move, will be widely followed as the Bank of Japan concludes a two-day meeting later on Thursday.

The tight COVID-19 constraints on Chinese growth and new worries about the soundness of the real estate industry are also lowering expectations for global demand.

By the end of the month, U.S. President Joe Biden anticipates speaking with his Chinese counterpart, but investors are apprehensive about how much of a thaw in Sino-US relations is conceivable or whether it will be able to stop the economy’s issues.

Commodities that affect economic growth, including copper and iron ore, have been falling, and this week, borrowers’ boycotts of payments on unfinished real development have damaged Chinese banks and property stocks.

“Past due mortgages doubled over the week, and … potential home buyers are waiting for a general drop in home prices for the housing market, including completed projects,” ING analysts said in a note to clients on Thursday.

“This is negative even for cash-rich developers” he added.

At 6.7700 to the dollar, the Chinese yuan was under pressure in morning trade. The dollar’s value against other currencies stabilised after falling earlier in the week. The price in Australian dollars was $0.6890.

British inflation rocketing to a 40-year high didn’t do much to boost sterling, which was trading at $1.1983, even as it encouraged bets on interest rate increases. The competition to succeed Boris Johnson as prime minister is being closely watched by traders.

Beyond the ECB, investors have reduced their bets on the Federal Reserve raising rates by 100 basis points next week; a 75 basis point increase is now considered as the most likely. However, the retreat coincided with growing concerns about economic growth.

A market indication that frequently portends a recession, the benchmark 10-year Treasury yield was steady in Asia at 3.0172 percent, below the 2-year yield of 3.2293 percent.