Aurelia Butler

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SYDNEY (Reuters) – Share markets slid and bonds rallied in Asia on Monday as fears the United States could be heading for recession triggered mass risk aversion and wagers interest rates will have to fall sharply, and quickly, to support growth.Investors began where they finished on Friday by knocking Nasdaq futures down 1.87%, while S&P 500 futures dropped 1.22%. MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.7%, while Japan’s Nikkei shed another 5.5% to hit seven-month lows.Japanese 10-year bond yields fell a steep 17 basis points to the lowest since April at 0.785% as markets radically reconsidered the prospect of another hike from the Bank of Japan. Treasury bonds were in demand with 10-year yields down at 3.755%, the lowest since mid-2023.Two-year yields sank 50 basis points last week to 3.82% and could soon slide below 10-year yields, turning the curve positive in a way that has heralded recessions in the past.The worryingly weak July payrolls report saw markets price in a near 70% chance the Federal Reserve will not only cut rates in September, but ease by a full 50 basis points. Futures imply 155 basis points of cuts this year, with a similar amount in 2025.”We have increased our 12-month recession odds by 10pp to 25%,” said analysts at Goldman Sachs in a note, though they thought the danger was limited by the sheer scope the Fed had to ease policy.Goldman now expects quarter-point cuts in September, November, and December.”The premise of our forecast is that job growth will recover in August and the FOMC will judge 25bp cuts a sufficient response to any downside risks,” they added. “If we are wrong and the August employment report is as weak as the July report, then a 50bp cut would be likely in September.”Analysts at JPMorgan were even more bearish, subscribing a 50% probability to a U.S. recession.”Now that the Fed looks to be materially behind the curve, we expect a 50bp cut at the September meeting, followed by another 50bp cut in November,” said economist Michael Feroli.”Indeed, a case could be made for an inter-meeting easing, especially if the data soften further — although Fed officials might worry about how such a move could be (mis)interpreted.”SEEKING SAFE HARBOURS Investors will get a read on employment in the service sector from the ISM non-manufacturing survey due later Monday and analysts are hoping for a rebound to 51.0 after June’s unexpected slide to 48.8.This week has earnings from industrial bellwether Caterpillar (NYSE:CAT) and media giant Walt Disney (NYSE:DIS), which will give more insight into the state of the consumer and manufacturing. Also reporting are healthcare heavyweights such as weight-loss drugmaker Eli Lilly (NYSE:LLY).The huge drop in Treasury yields had also overshadowed the U.S. dollar’s usual safe-haven appeal and dragged the currency down around 1% on Friday.Early Monday, the dollar was off another 0.6% on the Japanese yen at 145.53, while the euro was holding firm at $1.0920.The Swiss franc was a major beneficiary of the rush from risk, with the dollar near six-month lows at 0.8571 francs.”The shift in expected interest rate differentials against the U.S. has outweighed the deterioration in risk sentiment,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.”If the recession narrative takes hold in earnest, we would expect that to change, and the dollar to rebound as safe-haven demand becomes the dominant driver in currency markets.”Investors had also increased wagers other major central banks would follow the Fed’s lead and ease more aggressively, with the European Central Bank now seen cutting by 67 basis points by Christmas.In commodity markets, gold pulled back to $2,421 an ounce, perhaps undermined by investors taking profits to cover losses elsewhere. [GOL/]Oil prices bounced amid concerns about a widening conflict in the Middle East, though worries about demand had seen it sink to eight-month lows last week. [O/R]Brent gained 27 cents to $77.08 a barrel, while U.S. crude rose 23 cents to $73.75 per barrel. More

SINGAPORE (Reuters) – Japan’s yen hit mid-January highs against the dollar at Asia open on Monday, as markets extended moves triggered last week after weak U.S. labour data stoked recession worries and expectations of deeper rate cuts by the Fed.Friday’s job data, coming on top of a string of weak earnings reports from large technology firms and heightened concerns over the Chinese economy, drove a global selloff in stock markets, oil and high-yielding currencies as investors sought the safety of cash.The selling continued on Monday, with U.S. Treasury yields falling further, stock indexes in the red and currencies slightly less volatile but down against the dollar and yen.The safe-haven and carry-funding favourite, the yen, was traded at 145.43 yen, up 0.8% versus the dollar, after hitting a mid-January peak of 145.28 in early deals.The euro was flat at $1.091, the dollar index was nearly flat too at 103.17 while the Australian dollar fetched $0.6495 and was down 0.25%.”The market pricing has a 50 basis point rate cut by the Fed at its September meeting, which I think will be too much,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.”The U.S. economy is showing signs of slowdown but it’s not as bad as the market is pricing in.”But near-term momentum could keep the selloff going, with technical levels also pointing to more yen gains, he said.Treasury yields have been falling quite sharply since last week, when the Federal Reserve kept the policy rate in its current 5.25% to 5.50% range while Chair Jerome Powell opened the possibility of a rate cut in September.But by Friday, after data showed the unemployment rate jumped, sparking chatter U.S. economy could be heading for a recession, expectations for rate cuts deepened.Yields on 10-year U.S. Treasuries sank nearly 40 basis points last week, the largest weekly fall since March 2020, and were last at 3.79%.Fed fund futures reflected traders pricing an over 70% chance of a 50 basis point cut at the central bank’s September meeting, according to CME FedWatch. Futures imply 155 basis points of cuts this year, with a similar amount in 2025.The yen is up 10% against the dollar in just over 3 weeks, driven in part of the Bank of Japan’s large 15 basis points rate rise last week to 0.25%, alongside which it announced a plan to halve its monthly bond purchases over the next couple of years.Barclays analysts said the Japanese currency was the most overbought among G10 majors and therefore “the bar for yet more outperformance in the near term appears high”.The two-day rout in stock markets late last week saw the tech-heavy Nasdaq Composite notch a 10% correction from a record high hit in early 2022. Equities plunged in Europe and Asia as well, with Japan’s Nikkei index losing nearly 5% for the week.The closely watched U.S. two-year-to-10-year yield curve narrowed its inversion, to minus 5.7 bps, the least inverted since July 2022, reflecting both recession fears and expectations for sharp easing of short-term yields.Meanwhile, markets are also dealing with the risk of military escalation in the Middle East after latest developments in the war between Israel and Hamas in Gaza, which has driven oil prices to January lows. The U.S. military is deploying more forces in the Middle East and Europe following threats from Iran and its allies Hamas and Hezbollah to respond to the killing of Hamas leader Ismail Haniyeh two days ago in Tehran. More

TOKYO (Reuters) – Some Bank of Japan policymakers warned that rising import prices from a weak yen were hurting consumer sentiment and heightening the risk of an inflation overshoot, minutes of the central bank’s June 13-14 policy meeting showed on Monday.”Members agreed that the yen’s recent falls were among factors that push up inflation, and must warrant close attention in guiding monetary policy,” the minutes showed.One board member said the cost of leaving inflationary risks unattended was heightening as companies had become more keen to pass on rising costs than before, the minutes showed.A few in the nine-member board said the BOJ must consider raising interest rates from the perspective of forestalling future risks of an inflation overshoot.”One member said the BOJ must continue to closely monitor relevant data in preparation for the next meeting in July and, if deemed appropriate, raise interest rates without delay,” according to the minutes.The discussions underscore how the yen’s declines were among key factors that were discussed at the BOJ’s June meeting, and led to its decision in July to raise interest rates.The BOJ kept interest rates steady in June but decided to lay out a plan at the July meeting for bond tapering over the coming one to two years. More

WASHINGTON (Reuters) -The U.S. Commerce Department is expected to propose barring Chinese software in autonomous and connected vehicles in the coming weeks, according to sources briefed on the matter. The Biden administration plans to issue a proposed rule that would bar Chinese software in vehicles in the United States with Level 3 automation and above, which would have the effect of also banning testing on U.S. roads of autonomous vehicles produced by Chinese companies.The administration, in a previously unreported decision, also plans to propose barring vehicles with Chinese-developed advanced wireless communications abilities modules from U.S. roads, the sources added.Under the proposal, automakers and suppliers would need to verify that none of their connected vehicle or advanced autonomous vehicle software was developed in a “foreign entity of concern” like China, the sources said.The Commerce Department said last month it planned to issue proposed rules on connected vehicles in August and expected to impose limits on some software made in China and other countries deemed adversaries.Asked for comment, a Commerce Department spokesperson said on Sunday that the department “is concerned about the national security risks associated with connected technologies in connected vehicles.”The department’s Bureau of Industry and Security will issue a proposed rule that “will focus on specific systems of concern within the vehicle. Industry will also have a chance to review that proposed rule and submit comments.”The Chinese Embassy in Washington did not immediately comment but the Chinese foreign ministry has previously urged the United States “to respect the laws of the market economy and principles of fair competition.” It argues Chinese cars are popular globally because they had emerged out of fierce market competition and are technologically innovative.On Wednesday, the White House and State Department hosted a meeting with allies and industry leaders to “jointly address the national security risks associated with connected vehicles,” the department said. Sources said officials disclosed details of the administration’s planned rule.The meeting included officials from the United States, Australia, Canada, the European Union, Germany, India, Japan, the Republic of Korea, Spain, and the United Kingdom who “exchanged views on the data and cybersecurity risks associated with connected vehicles and certain components.”Also known as conditional driving automation, Level 3 involves technology that allows drivers to engage in activities behind the wheel, such as watching movies or using smartphones, but only under some limited conditions.In November, a group of U.S. lawmakers raised alarm about Chinese companies collecting and handling sensitive data while testing autonomous vehicles in the United States and asked questions of 10 major companies including Baidu (NASDAQ:BIDU), Nio (NYSE:NIO), WeRide, Didi Chuxing, Xpeng (NYSE:XPEV), Inceptio, Pony.ai, AutoX, Deeproute.ai and Qcraft.The letters said in the 12 months ended November 2022 that Chinese AV companies test drove more than 450,000 miles in California. In July 2023, Transportation Secretary Pete Buttigieg said his department had national security concerns about Chinese autonomous vehicle companies in the United States.The administration is worried about connected vehicles using the driver monitoring system to listen or record occupants or take control of the vehicle itself.”The national security risks are quite significant,” Commerce Secretary Gina Raimondo said in May. “We decided to take action because this is really serious stuff.” More