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Bond market jitters continue to sink risk assets, Asian markets set for a mixed open

Central banks

Wall Street fell for the fifth straight trading day as markets are repricing for higher rates due to spikes in bond yields. The US 10-year Treasury yield surged to 3.88%, the highest seen in April 2010. And the yield on the 2-year notes jumped to 4.31%, a fresh 15-year high. The British pound’s crash sparked concerns that accelerating rate hikes by central banks may artificially throw the global economy into recession. The US dollar index topped 114, the highest seen in April 2002. But notably, despite a continuation of the broad selloff, tech shares and cryptocurrencies showed resilient moves, suggesting that investors may seek bargains amid dip-buys. 

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  • The Dow Jones Industrial Average falls into a bear market, finishing below 30,000 for the first time since November 2020. Dow down 0.91%, S&P 500 declines 1.02%, and Nasdaq slips 0.6%. 10 out of the 11 sectors in the S&P 500 finished lower, with Energy, Real Estate, and Utility stocks leading losses, all down more than 2.4%. Consumer staples is the only sector that closed in green, up 0.02%. Amazon outperformed mega-cap companies, up 1.25%, Apple rose 0.22%, and Tesla was up 0.23%. The rest of the tech giants all finished lower. Meta Platforms slumped 2.88%, to the lowest seen in March 2020.
  • Apple said it is assembling iPhone 14 in India, shifting some production away from China amid the intensified geopolitical tension between US and China over Taiwan. The move may be the start of the US major tech companies’ departure of manufacturers from China.
  • Bank of England vows not to slow down rate hikes, despite deteriorated economic outlooks. The bond futures are now pricing in a 200 basis points rate hike by the central bank in its next meeting. The British pound fell to an all-time low against the USD to just above 1.03 before rebounding back to close to 1.07, due to the so-called new UK government’s mini-budget. The stimulus package is against the recent tightening measures taken by the BOE, which could send the pound lower to a parity level with the US dollar.
  • The far-right coalition wins in the Italian election, becoming the country’s farthest-right government since Mussolini, which increases uncertainties in European politics, pressing on the Eurodollar.
  • Asian markets are set to open mixed as the selloff may take a breather after a week-long sharp decline. ASX futures were slightly up 0.23%. Nikkei225 futures were up 0.50% and Hang Seng Index futures were down 0.19%. 
  • The offshore Chinese Yuan hits a fresh 2-year low against the USD seen in May 2020, with USD/CNH topping 7.17, inches away from its all-time high of 7.20. China’s exporters are not willing to convert their foreign exchange back into Yuan, which intensifies the devaluation of the local currency.
  • Brent crude prices fell below 85 for the first time since January due to a strong US dollar and recession concerns. A weakened demand outlook in China and other Asian countries also pressured the oil markets.
  • Accumulative trades may continue in cryptocurrencies, with Bitcoin and Ethereum up 1% and 2% respectively on Monday. The leading digital coins have been consolidating above the recent lows since last week, despite high volatilities in the global markets. 
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