Investors’ nerves are ruffled about the potential of interest rates remaining higher for longer, with a jump in US Treasury yields driving the dollar to a 10-month high and Asian currencies, the pound, and the euro to their lowest levels in months.
Resilient economic indicators, hawkish Federal Reserve rhetoric, and a budget deficit that would necessitate greater borrowing have all contributed to a more than 40 basis point spike in the 10-year yield this month. Short-dated Treasuries gained during Asian hours on Wednesday, but longer-dated Treasuries held steady.
As the day progressed, Asian markets were under pressure, with MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) falling to its lowest level in ten months. For the first time since August 28, the Nikkei (.N225) fell below 32,000 points.
Futures show that the gloomy mood will likely persist once Europe awakens, with markets there set to open lower.
Another government shutdown in the United States looms in the backdrop. While the Senate took a step forward on a bipartisan agreement aimed at averting a shutdown in only five days on Tuesday, the House of Representatives attempted to go ahead with a competing measure backed only by Republicans.
Since 1981, Congress has shut down the government 14 times, with the majority of those shutdowns lasting barely a day or two.
According to a Bloomberg News story on Wednesday, China’s property sector provided more bad news, this time that the head of China Evergrande Group (3333.HK) has been placed under police monitoring. This adds to the strain on the beleaguered developer, whose prospects have already deteriorated substantially this week.
Meanwhile, tech stocks are likely to be in the spotlight after the US Federal Trade Commission launched a long-awaited antitrust action against Amazon.com (AMZN.O) on Tuesday.
The FTC requested that the court consider ordering the online retailer to divest assets, accusing Big Tech of monopolizing the most profitable sections of the internet.
AI stocks (remember them?) will also be in the spotlight following news that OpenAI, the artificial intelligence startup behind ChatGPT, is in talks with investors about selling existing shares at a considerably higher valuation than a few months ago.
According to the Wall Street Journal, which initially reported on the potential share sale, the proposed purchase could value Microsoft-backed (MSFT.O) OpenAI at $80 billion to $90 billion.
Finally, Candy Crush creator King announced that it would soon deliver levels up to 15,000 for the most dedicated gamers. It also stated that the famous game has generated $20 billion in revenue since its release in 2012.
Important developments that could have an impact on markets on Wednesday include:
Economic events include GfK consumer sentiment in Germany, investor opinion in Switzerland, and consumer confidence in France.
