Dollar Climbs on Fed Bets as Australian Bonds Sink; Oil Retreats
Japanese stocks advance as yen weakens for a sixth day
Regional sovereign debt slides amid U.S. rate-hike speculation
The dollar strengthened for a sixth day versus the yen and sovereign bonds fell as American manufacturing data and hawkish comments from a Federal Reserve official spurred bets that U.S. interest rates will be raised this year. Most Asian stocks advanced.
A gauge of the greenback’s strength climbed to a two-week high and yields on benchmark U.S. Treasuries increased for a third day. Sovereign bonds in Australia dropped by the most in a year and South Korea’s fell by the most in three weeks as trading resumed following holidays on Monday. About five shares rose for every three that fell on the MSCI Asia Pacific Index, with Japanese exporters getting a boost from the depreciating yen. Crude oil retreated from a three-month high.
American manufacturers’ output and new orders expanded in September, spurring confidence that the world’s biggest economy is robust enough to withstand higher interest rates. Fed Bank of Cleveland President Loretta Mester said Monday she expects the case for a rate hike to remain “compelling” at the next review in November, having been one of three policy makers to dissent in favor of an increase at the September meeting. The probability of U.S. borrowing costs being raised by December stood at 61 percent on Monday, up 10 percentage points from a week earlier, futures show.
“The data is suggesting the Fed will likely raise rates in December,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “We’ll probably have a couple of months of stronger data gauging from the strength of new orders. The yen weakness is supportive of Japanese exports.”
Fed Bank of Richmond President Jeffrey Lacker is due to speak Tuesday and may touch on the outlook for U.S. monetary policy. Australia’s central bank kept its benchmark interest rate at a record-low 1.5 percent following Philip Lowe’s first policy meeting as governor, a decision forecast by all of the economists in a Bloomberg survey. The Reserve Bank of India is also due to review policy for the first time since a leadership change and 44 percent of the analysts polled were looking for a rate cut. Markets in mainland China are closed all week for a holiday.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.2 percent as of 12:50 p.m. Tokyo time. The yen slid 0.5 percent versus the dollar, extending its longest run of losses since August.
“Better-than-expected U.S. data are reminding markets that November remains a live meeting” for the Fed, said Christopher Wong, a foreign-exchange strategist at Malayan Banking Bhd. in Singapore.
The pound fell as much as 0.2 percent to $1.2817, near a July level of $1.2798 that was the weakest in three decades. British Prime Minister Theresa May said over the weekend that she’ll begin the process of withdrawal from the European Union in the first quarter of 2017 and curb immigration, stoking speculation the U.K. is headed toward a so-called hard Brexit — with limited access to the EU’s single market.
Australia’s 10-year bonds fell 1.1 percent from Friday’s close and their yield surged 12 basis points to 2.08 percent. South Korean bonds due in a decade snapped a seven-day winning streak, lifting their yield by five basis points to 1.45 percent.
The rate on similar-maturity U.S. Treasuries rose one basis point to 1.63 percent, after climbing six basis points over the last two sessions. A Treasury market gauge of inflation expectations advanced to a four-month high on Monday, spurred by Mester’s comments and an increase in oil prices.
Japan’s 10-year bonds erased earlier losses after demand strengthened at a sale of the tenor, with the bid-to-cover ratio increasing to the highest since June. The securities yielded minus 0.07 percent, compared with minus 0.055 percent ahead of the auction.
The MSCI Asia Pacific Index added 0.1 percent, after gaining 0.6 percent on Monday. Japan’s Topix gained 0.6 percent, with Toyota Motor Corp. advancing 1.7 percent. Hong Kong’s Hang Seng Index was little changed, while benchmarks in Australia and New Zealand were the region’s only decliners.
“Overall, the U.S. economy appears to be on a growth track,” said Mitsuo Shimizu, a deputy general manager at Japan Asia Securities Group Ltd. in Tokyo. “As some had been expecting a deterioration in the manufacturing figures, alleviation of such worries will help Japanese shares rise.”
China Evergrande Group jumped as much as 12 percent in Hong Kong after announcing a plan to shift most of its property assets into a listed company in Shenzhen, where valuations are higher. Hyundai Motor Co. climbed in Seoul by the most since July after data showed the company’s sales increased last month in the U.S. and India.
Futures on the S&P 500 added 0.1 percent, while contracts on the U.K.’s FTSE 100 Index were down 0.2 percent.
Crude oil fell 0.5 percent to $48.57 a barrel in New York, losing ground for the first time in a week before data that’s forecast to show U.S. crude stockpiles expanded. Production from Libya, among countries exempt from an OPEC output cut, rose to 500,000 barrels a day and will climb further this month, a state oil company official said.
Gold fell for a sixth day, its longest losing streak since August. Growing expectations for a U.S. rate hike weigh on the metal as it doesn’t bear interest.
Most industrial metals retreated in London, led by a 0.7 percent drop in lead, after Deutsche Bank AG warned that demand driven by China’s property sector will fade next year. An LME index tracking the metals moved into a bull market last week as economic data pointed to a stronger economic outlook for China, the top commodities consumer.