Marketmind: Dollar feeds on stress
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[October 10, 2022] A
look at the day ahead in U.S. and global markets from Mike Dolan
A stressful start to a packed week for
world markets saw the U.S. dollar feed off a sour brew of geopolitical,
economic policy, international trade and corporate tensions.
Even though U.S. bond markets are partly closed on Monday for the
Columbus Day holiday, implied Wall St volatility gauges climbed again
ahead of Thursday's critical U.S. consumer price inflation reading for
September and the start of the third-quarter earnings season.
The VIX 'fear index' jumped almost 3 points to more than 33 early on
Monday - its highest for the month and at a level that would mark its
highest close since June if sustained later in the day. And as a fourth
75 basis-point Fed rate hike is now fully priced yet again, the dollar's
DXY index climbed again - and traders started to eye year-end trading
stress too.
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With the annual meetings of the International Monetary Fund and World
Bank in Washington as a backdrop, the week kicked off with further
tremors from Russia's faltering invasion of Ukraine and mounting trade
tensions between the U.S. and China.
With last week's warning from Advanced Micro Devices and Micron
Technology ringing in the ears, the chip sector shivered into the new
week.
Shares in Chinese tech giants Alibaba Group and Tencent as well as in
chipmakers slumped on Monday, as investors were spooked by new U.S.
export control measures aimed at slowing Beijing's technological and
military advances.
The Biden administration published a sweeping set of export controls on
Friday, including a measure to cut China off from certain semiconductors
made anywhere in the world with U.S. equipment. The measures could
amount to the biggest shift in U.S. policy on exporting technology to
China since the 1990s.
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U.S. dollar banknotes are displayed in
this illustration taken, February 14, 2022. REUTERS/Dado Ruvic/Illustration
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Returning after a week of closures, the broad Shanghai stock index
was down 1.6%, Hong Kong was down almost 3% and the offshore yuan
weakened against the dollar.
Elsewhere, UK finance minister Kwasi Kwarteng headed to Washington
for the IMF meeting - following criticism by the Fund of his
controversial 'mini budget' - and the UK Treasury brought forward
its spending review to Oct 31.
The pound, UK government bonds and British stock indices all
weakened and the Bank of England moved to ease concerns about the
expiry at the end of this week of its emergency programme to calm
turmoil in the gilt market, including a doubling of the maximum size
of its planned debt buy-back on Monday.
Key developments that should provide more direction to U.S. markets
later on Monday:
* Columbus Day holiday - U.S. bond markets closed
* U.S. Federal Reserve Vice Chair Lael Brainard and Chicago Fed
chief Charles Evans speak. European Central Bank chief economist
Philip Lane speaks
* International Monetary Fund and World Bank annual meetings get
underway in Washington
(By Mike Dolan; Editing by Hugh Lawson mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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