The markets are entering fall

A trader walks on the trading floor of the New York Stock Exchange (NYSE) in Manhattan, New York City, US, August 3, 2022. REUTERS/Andrew Kelly/File Photo

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A look at the day ahead in the US and global markets from Mike Dolan.

Meteorological autumn is near, Labor Day holiday Monday is in plain sight and global markets are in a bad mood.

With the exception of Japan, G7 short-term bond yields continue to rise due to a toxic combination of high inflation, hawkish interest rate expectations and the prospect of a gradual withdrawal of central banks as bond bidders as they try to do so. Solve their bloated budgets.

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The sell-off in US Treasuries shows no sign of abating, as markets are strongly biased towards another 75 basis point rate hike from the Federal Reserve this month, despite the surprisingly weak ADP private sector jobs report on Thursday for August. Markets now also see an 80% chance of a similar rally from the ECB next week as well.

US 2-year yields hit a 15-year high of 3.52% overnight and 10-year yields above 3.2% for the first time since June – Eurozone and UK bond yields are also up. With stocks around the world plummeting again, S&P500 futures were deep in the red ahead of Thursday’s open.

The dollar is still rising across the board, but the Japanese yen and the British pound were in the crossfire on Thursday.

With the Bank of Japan insisting not to follow its G7 peers in tightening monetary policy and amid rising bond yield gaps, the yen hit a 24-year low just under 140 against the dollar – prompting warnings about excessive currency market volatility from government officials. Read more

The pound slid to its lowest level against the dollar since the pandemic hit – after its worst month since the Brexit referendum in 2016. The fear for Britain is that the winter energy price crisis is exacerbating inflation expectations and fears of a deep recession. The Bank of England may lag behind its tightening peers to plow a middle ground, even as it actively sells government bonds from its portfolio.

There was some relief on the energy front on Thursday as crude oil prices fell further and German energy prices continued to slip sharply from their early week highs.

The White House said the Group of Seven finance ministers will discuss the US proposal to cap Russian oil prices when they meet on Friday. Read more

The European Commission is also studying options to reduce energy prices and reduce electricity demand, as part of its upcoming proposals to tackle high energy costs.

Read more

Chip makers may be in focus again after news that the US government has asked Nvidia (NVDA.O) to stop exporting some chips to China. Read more

Geopolitical tensions between the major economic powers remained tense. The outgoing United Nations High Commissioner for Human Rights said the detention of Uyghurs in Xinjiang may constitute crimes against humanity, prompting fierce denials from Beijing. Read more

Key developments that should provide further guidance to US markets later on Thursday:

* ISM US Manufacturing Survey for the month of August (August). Weekly Unemployment Claims, Revised Labor Costs for the Second Quarter, and Productivity Data

* Atlanta Federal Reserve Chairman Rafael Bostic is scheduled to speak

US corporate profits:

G7 Bond Yields
The dollar against the yen and the pound sterling
UK inflation forecasts

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Written by Mike Dolan, Editing by Alex Richardson, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD

Our Standards: Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed under the Trust Principles to impartiality, independence, and freedom from bias.

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