Dollar Firms, Yen Weakens as Stocks Tread Water: Markets Wrap

(Bloomberg) — Equities in Asia were primed for a mixed open after US stocks ended Wednesday flat. Higher US yields supported the dollar against the yen.

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An index of greenback strength advanced for a third session Wednesday as the yen weakened to a weekly low before stabilizing in early Thursday trading.

The moves reflected a selloff in Treasuries with the 10-year note falling for the first time in six sessions. The decline in bond prices increased yields four basis points to 4.49% and came as a $42 billion sale of 10-year bonds saw tepid demand.

Futures contracts for Japanese and Hong Kong shares inched higher, while those for Australian stocks fell — although the moves were less than 0.5% in each direction, signaling a muted mood across markets. US equities closed steady Wednesday with the S&P 500 and Nasdaq 100 indexes largely flat, weighed down by losses in megacaps including Telsla Inc. and Alphabet Inc.

“All of these ingredients create a perfect recipe for an excuse for investors to take a step back after the recent bounce and reassess things,” said strategists at Bespoke Investment Group.

In Asia, data set for release includes April trade data for China, where new lending and money supply figures could also be released as early as today. Malaysia will hand down a monetary policy decision, while markets in Indonesia are closed. Elsewhere, the Bank of Japan issues a summary of opinions from its April policy meeting.

Investors will also be keeping a close eye on troubled Chinese developer Country Garden Holdings Co., which is seeking help to pay interest due Thursday, said people familiar with the matter.

Investors Hesitant

Lack of conviction among investors to buy into the recent bounce in US stocks shows the market is far from turning fully bullish, said Citigroup Inc. strategists. The recent unwinding of short positions has left the S&P 500 close to one-sided net long, but investors appear hesitant to add to the existing bullish positions, a team led by Chris Montagu noted.

“Flows tell a story of limited enthusiasm with a trickle of new long positions and only marginal increase in risk appetite,” Montagu said.

Following a pullback last month, equities resumed their advance in early May as solid corporate earnings bolstered sentiment and speculation grew that the Federal Reserve will be able to cut rates this year. The recent rally brought the S&P 500 about 1% away from its all-time high.

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Inflation figures due next week will offer fresh insights about the US economy after employment data out Friday showed the labor market is cooling. Fed Bank of Boston President Susan Collins signaled Wednesday that interest rates will likely need to be held at a two-decade high for longer than previously thought to dampen demand and reduce price pressures.

“Despite the lack of good news on inflation, there is a silver lining for patient investors,” said Mark Hackett at Nationwide. “As the Federal Reserve extends the timeline for interest rate cuts, historical data shows that longer Fed pauses often correlate with better equity returns. This should give investors reasons to be optimistic.”

In commodities, West Texas Intermediate rose by the most in almost two weeks Wednesday. The Biden administration raised the price it is willing to pay to refill the country’s emergency oil reserves, which have dwindled near the lowest in four decades. Gold prices fell for a second session, ending Wednesday 0.2% lower and leaving prices hovering around $2,310 per ounce.

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