Stocks and bonds are punished as the Fed emphasizes caution

  • The Fed’s Waller cuts the CPI to a single number
  • Beijing Offers Property Support, Covid Steps
  • Biden meets China’s Xi at G20 meeting
  • Limited fall to other assets in FTX decline

LONDON, Nov 14 (Reuters) – Stocks were steady on Monday and bond yields neared multi-year highs after the top U.S. central banker warned investors not to get carried away by a single data point showing signs of victory in the fight against inflation.

A modest miss in US inflation was enough to see the dollar lose nearly 4% on two-year Treasuries, down 33 basis points for the week — the fourth biggest weekly decline since the era of free-floating exchange rates began 50 years ago.

However, the Federal Reserve did not fully welcome the resulting easing of US financial conditions, Governor Christopher Waller said on Sunday, adding that softer reports would be needed to get the bank to take its foot off the brakes.

Waller said markets were getting ahead of themselves on an inflation axis, although he acknowledged the Fed may now start thinking about hiking at a slower pace.

Futures are betting heavily on a half-point rate hike in December to 4.25-4.5%, then two quarter-points to peak in the 4.75-5.0% range.

The two-year yield fell to 4.39% after a deep dive to 4.29% on Friday.

Germany’s 2-year government bond yield, more sensitive than other maturities to policy rate changes, rose 1.5 basis points (bps) to 2.11%, up from 2.252% last week since December 2008.

“The negative CPI surprise is consistent with a broad range of indicators pointing to a slowdown in global inflation, which could encourage a moderation in the pace of monetary policy tightening at the Fed and elsewhere,” said Bruce Gassman, head of economic research at JP Morgan.

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“This positive message should be tempered by the recognition that a reduction in inflation means central banks will be too low to declare the job done, and that further tightening is likely.”

The main European STOXX index rose 0.15% (.STOXX)and MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) It added 0.5%, after rising 7.7% last week.

S&P E-Mini futures were down 0.44%, with US markets opening lower.

Eyes on China

Chinese shares gained on news that regulators have asked financial institutions to provide more support to stressed property developers.

China’s real estate index (.CSI000952) 3.5% rise in response. Blue chips (.CSI300) The 0.2% rise was helped by several changes to China’s COVID restrictions, even as the country reported more cases over the weekend. read more

“It’s hard to see the case news as negative from an economic standpoint, but it’s a sign of momentum, and markets are happily embracing the no-nonsense, zero-covid strategy,” said Ray Adrill, head of FX strategy. At NAB.

Support for China’s property sector, which consumes the bulk of the metals, lifted copper to a five-month high. Three-month copper on the London Metal Exchange (LME) rose 0.3% to $8,519 a tonne.

US President Joe Biden met Chinese President Xi Jinping in person on Monday for the first time since taking office in Indonesia’s Bali island ahead of the Group of 20 (G20) summit. Bilateral relations are at their lowest level in decades amid disagreements over Taiwan, Russia’s war in Ukraine and North Korea’s nuclear ambitions.

Contains crypto

Last week’s collapse of crypto exchange FTX and the resulting decline in cryptocurrencies seems not to have tainted other asset classes, as regulators pick up the slack and investors in digital assets watch nervously.

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Bitcoin recovered 2.9% to $16,788, down nearly 22% last week, but FTX’s own token, FTT, was last down 2.4% at $1.38, covering almost 95% of its month-to-date losses.

Following Governor Waller’s intervention over the weekend, the dollar was steady amid dim expectations of a less aggressive Federal Reserve interest rate hike.

The dollar index was last seen at 107.15 on Monday, still below last week’s top of 111.280, while the euro eased a touch to $1.02875 after rising 3.9% last week.

Sterling returned to $1.1766 ahead of the British finance minister’s autumn statement on Thursday, where he is expected to set out tax hikes and spending cuts.

A firmer dollar dragged down oil prices, despite hopes of a boost in demand from China’s hints of a reopening.

Brent crude futures were down 52 cents, or 0.59%, at $95.42 a barrel by 1128 GMT after rising 1.1% on Friday.

Reporting by Lawrence White and Wayne Cole; Editing by Sri Navaratnam, Kenneth Maxwell, William McLean and Gareth Jones

Our Standards: Thomson Reuters Trust Principles.

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