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US equity futures drift lower amid bond jitter, China’s rate decision awaiting

China

The US markets closed on Juneteenth Day but equity futures drifted lower as the government bond yields climbed in Europe, anticipating more rate hikes by central banks. Major European markets finished lower as the UK 2-year gilt yield hit a fresh 15-year high of above 5% ahead of the BOE’s rate decision this week. The UK 2-year mortgage rate soared to 6.01%, the highest since 1 December, warning of a credit crunch in the country’s housing markets.

The US dollar rose amid rising rates, sending all the other G-10 currencies and commodity prices down. The weakness is particularly seen in Asian currencies, including the Japanese Yen and the Chinese Yuan due to the opposite monetary policy stance of the central banks. The USD/JPY rose to just under 142, the highest seen in November 2022. In the meantime, the Japanese stock markets hovered around all-time high levels following the news that Warren Buffett raised its stake by an average of over 8.5% in five Japanese trading houses.

The ASX was the only major stock market that ended in the green on Monday, led by healthcare and consumer stables ahead of China’s critical rate decision later today. The PBOC is widely expected to cut its 1-year and 5-year Loan Prime Rates for the first time since August 2022, aiming to rejuvenate the country’s economy.

Futures markets point to a mixed open across Asia. ASX 200 futures were up 0.18%, Nikkei 225 fell 0.18%, and Hang Seng Index futures were up 0.09%.

Price movers:

  • The US Secretary of State Antony Blinken met Chinese President Xi Jinping on Monday, marking the highest-level American official visit to China since US President Joe Biden took leadership. The meeting may ease the geopolitical tensions to a certain degree between the two countries as both parties have given positive comments regarding the dialogue.
  • The Japanese stock markets hovered around all-time high levels, with the Nikkei 225 rising to above 33,370 and the Topix staying above 2,286. Berkshire Hathaway Inc. boosted its investment in five Japanese trading houses, including Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. The recent rally in the Japanese markets is supported by pro-growth monetary policy, rising inflation, mounting share buybacks, and a stable political environment.
  • Chinese Yuan remains weak amid a faltering economic recovery, ahead of the key rate decision by the central banks. The USD/CNH rose to a 7-month high level, while the currency of China’s major trading partner, the Australian dollar, strengthened to the highest level since July 2022 against the Yuan.

Today’s agenda:

  • RBA meeting minutes
  • China’s LPR decision


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