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(Bloomberg) — Asian equities were poised for a cautious open after US stocks edged lower and Treasuries sold heavily as solid US factory data reinforced speculation that the Federal Reserve will be in no rush to cut interest rates.

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Equity futures for Japan inched higher early Tuesday, helped along by a weaker yen, while Australian and Hong Kong equity markets will return after holidays. The S&P 500 fell 0.2% Monday, while the Nasdaq rose by the same margin during the session.

Treasuries fell across the curve Monday — with 10-year yields climbing over 10 basis points — as manufacturing unexpectedly expanded for the first time since September 2022 — while input costs climbed. Following the report, the amount of Fed easing priced into swap contracts for this year slid to around 65 basis points — less than forecast by policymakers. Equities also lost traction after the S&P 500 notched its fifth-straight month of gains.

Australian 10-year yields followed their US counterparts, climbing 12 basis points in early Tuesday trading.

“Investors are indeed front-running the possibility of yet another hawkish pivot from the Fed,” said Jose Torres at Interactive Brokers. “The Fed’s first rate cut may arrive in the second half of the year after all — with probabilities of a reduction this June inching closer to coin-flip odds.”

Later this week, a report is expected to show employment gains continued in March while wage growth moderated. Fed Chair Jerome Powell — who is set to speak Wednesday — said Friday that officials are awaiting more evidence prices are contained.

The yen steadied in early Tuesday trading after weakening toward 152 per dollar on Monday. The decline has increased the risk that Japanese officials may intervene in the market.

The dollar rose. Oil and gold climbed as an Israeli attack in Syria threatened to widen the conflict in the Middle East.

While the market appears “content” to point toward the manufacturing release as the trigger for the move, there was already a bond selloff underway prior to the headlines, said Ian Lyngen and Vail Hartman at BMO Capital Markets.

“Monday’s price action in the futures space suggests the pendulum of sentiment in US rates may be shifting toward the hawkish direction — although it goes without saying there remains ample room for expectations to meaningfully shift as more data is revealed,” they noted.

The Institute for Supply Management’s manufacturing gauge rose to 50.3 last month. While barely above the level of 50 that separates expansion and contraction, it halted 16 straight months of shrinking activity. At the same time, the group’s gauge of prices paid rose to 55.8, the highest since July 2022.

Perhaps “most troubling” was the jump in the prices paid, according to Michael Shaoul at Marketfield Asset Management. “This indicates that some of the ‘transitory’ relief from reflationary forces is starting to reverse.”

In Asia, data set for release Tuesday includes South Korean inflation data, meeting minutes for the Reserve Bank of Australia and PMIs for India.

US Stocks

The cost of S&P 500 bullish call options expiring in one year with a 25% chance of coming in the money — known as having a 25-delta — is up, while the cost of equivalent bearish puts is down. Meaning investors are ready for continued broad market advances and aren’t particularly worried about a slight pullback.

To Chris Senyek at Wolfe Research, trading in stocks is likely to get much choppier following an incredibly strong run and little fear baked into prices.

“Overvaluation alone has not historically been cause for imminent concern,” a Goldman Sachs Group Inc. team led by Ryan Hammond told clients in a note last week. “Periods of overvaluation often persist for nearly a year and are typically benign if the subsequent economic growth environment is healthy.”

Key events this week:

  • Eurozone S&P Global Manufacturing PMI, Tuesday

  • US factory orders, light vehicle sales, JOLTS job openings, Tuesday

  • Fed’s John Williams, Loretta Mester, Mary Daly and Michelle Bowman speak, Tuesday

  • St. Louis Fed President Alberto Musalem takes office, Tuesday. He replaces James Bullard.

  • China Caixin services PMI, Wednesday

  • Eurozone CPI, unemployment, Wednesday

  • Japan services PMI, Wednesday

  • US ADP employment, ISM Services, Wednesday

  • Fed Chair Jerome Powell speaks, Wednesday

  • Fed’s Austan Goolsbee, Adriana Kugler and Michelle Bowman also speak, Wednesday

  • Eurozone S&P Global Services PMI, PPI, Thursday

  • US initial jobless claims, Challenger job cuts, Thursday

  • Fed’s Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker, Austan Goolsbee speak, Thursday

  • European Central Bank publishes account of March rate decision, Thursday

  • Eurozone retail sales, Friday

  • US unemployment, nonfarm payrolls, Friday

  • Fed’s Michelle Bowman, Thomas Barkin and Lorie Logan speak, Friday

Some of the key moves in markets:

Stocks

Bonds

Currencies

  • The Bloomberg Dollar Spot Index rose 0.3%

  • The euro was little changed at $1.0744

  • The Japanese yen was little changed at 151.64 per dollar

  • The offshore yuan was little changed at 7.2596 per dollar

Cryptocurrencies

  • Bitcoin was little changed at $69,822.82

  • Ether rose 0.1% to $3,502.55

Commodities

This story was produced with the assistance of Bloomberg Automation.

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©2024 Bloomberg L.P.



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