Stocks dig in heels, dollar winning run best since 2014

[September 08, 2023]  By Huw Jones

LONDON (Reuters) - Global shares steadied on Friday as the dollar headed for its longest winning streak since 2014 on the back of a buoyant U.S. economy, with investors expecting central banks to stand pat on rates over the coming two weeks.

The tech sector was in focus after about $200 billion was wiped from Apple's market capitalisation in two days on reports of China curbing iPhone use by state employees and on Friday protectionism fears were weighing on shares of suppliers.

The feisty dollar weighed on copper and crude oil prices, with the health of China's slowing economy and its knock on effect on demand also a worry as the yuan fell to its weakest level since 2007.

"People think the U.S. economy is in better shape than anyone else and don't think interest rates are going to go up again," said Mike Hewson, chief market strategist at CMC Markets.

"Everything is geared towards the next couple of weeks, with European Central Bank, Federal Reserve and Bank of England meeting. I think they will all sit on their hands," Hewson said.

Euro zone government bond yields, however, were on track to end the week higher after hawkish remarks from ECB policymakers led money markets to increase their bets on a further rate hike next week.

Stocks stabilised after a near week of easing, with the MSCI All Country stock index flat at 677.56 points, down 1.5% for the week so far, but still up nearly 12% for the year.

In Europe, the STOXX index of 600 companies was up 0.2%, though heading for a loss of 0.7% for the week.

S&P 500 futures were little changed.

Patrick Spencer, vice chair of equities at Baird, said investors were trying to guess at what pace the Fed could begin cutting interest rates next year.

"Maybe you are going to see slightly higher for longer rates and they may not come down as quickly next year, and that in itself will slow consumption and consumer confidence," Spencer said.

YUAN AT 16-YEAR LOW

Dollar gains have pushed the Chinese yuan to a 16-year low and have also prompted a step up in rhetoric from Japanese policymakers growing uncomfortable with the yen's slide.

"Given challenges facing China, and more signs of a re-tightening of the U.S. jobs market, it is not surprising that the dollar is finding support, allowing the 'dollar juggernaut' to continue its rampaging run," analysts at ANZ Bank said in a note.

The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo

MSCI's broadest index of Asia-Pacific shares outside Japan was flat, but down over 1% for the week. Hong Kong markets were closed for the morning due to storms lashing the city. Japan's Nikkei fell 1.1%.

Shares in Taiwan's TSMC, a big Apple supplier, eased 0.5%. Shares in South Korea's SK Hynix, whose chips some users have found in China's Huawei Technologies' new phone, fell 4%. Tokyo Electron shares dropped about 4%. [.KS][.T]

"China’s partial ban on Apple products put trade wars and U.S.-China decoupling back on the agenda," said Capital.com analyst Kyle Rodda. "The ban is narrow in scope ... however, it illustrated the two-way costs and risks of decoupling."

Tech stocks were already under pressure from U.S. yields that have been rising on bets that U.S. interest rates are likely to linger at 20-year highs, helping to push up the dollar.

In currencies, the euro is down 0.5% this week and traded steady at $1.07110.

The yen has found new 10-month lows and, at 147.45 per dollar is heading towards the vicinity of 150, where traders see high risks of authorities stepping in with support.

Japan's top currency diplomat Masato Kanda said on Wednesday that authorities willl not rule out any option to clamp down on "speculative" moves, while chief cabinet secretary Hirokazu Matsuno said the government was watching with "urgency".

Benchmark 10-year U.S. Treasury yields were trading at 4.2383%, while two-year yields were trading at 4.9443%.

Brent crude prices are up this week, but gains on recently robust U.S. data have been tempered by softening indicators of demand in Europe and China.

Brent futures traded down 0.16% at $89.79 a barrel.

(Additional reporting by Heekyong Yang in Seoul; Editing by Shri Navaratnam and Tomasz Janowski)

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