Asian markets experienced mixed performance on a quiet Monday trading session, marked by several market closures due to holidays in China and South Korea. Despite this, oil prices advanced, and U.S. futures showed strength as concerns of a U.S. federal government shutdown diminished following Congress’s approval of a temporary funding bill over the weekend, ensuring federal agency operations until November 17.
Japan’s Nikkei 225 index faced a slight decline, influenced by a positive central bank survey that revealed a rise in business confidence. The Bank of Japan’s quarterly “tankan” survey indicated a sentiment improvement among major manufacturers, with a score of plus 9, up from plus 5 in June.
Major non-manufacturers also showed a positive sentiment, rising by four points to plus 27. This marks the sixth consecutive quarter of improvement and the most optimistic result in nearly three decades.
In Tokyo, the Nikkei 225 index initially gained ground but later retreated by 0.3%, closing at 31,759.88. Meanwhile, Australia’s S&P/ASX 200 slipped by 0.2% to 7,033.20. In contrast, Taiwan’s Taiex surged by 1.2%, and the SET index in Bangkok recorded a modest 0.1% increase.
On the previous Friday, Wall Street concluded its worst month of the year with further losses. The S&P 500 declined by 0.3% to 4,288.05, while the Dow fell by 0.5% to 33,507.50. The Nasdaq composite managed a slight 0.1% gain, closing at 13,219.32.
After initially easing due to encouraging signals about inflation earlier in the day, Treasury yields resumed their ascent as the day progressed. The 10-year Treasury yield returned to 4.58%, the same level observed late Thursday after briefly dipping to 4.52%. This yield remains close to its highest point since 2007.
Treasury bonds are traditionally viewed as one of the safest investment options. When their yields rise, investors become less inclined to pay elevated prices for stocks and riskier assets. This contributed to the S&P 500’s 4.9% decline in September, erasing a substantial portion of the year’s gains and reducing them to 11.7%.
The surge in Treasury yields reflects Wall Street’s acceptance of a new reality where the Federal Reserve is expected to maintain high interest rates for an extended period. The Fed is employing these high rates to combat persistent inflation and curb economic growth, which has an impact on asset prices.
The Federal Reserve’s primary interest rate currently stands at its highest level since 2001. Last week, the central bank indicated that it might implement interest rate cuts next year, but at a lesser magnitude than previously anticipated.
Recent economic data revealed that not only did inflation in August come in slightly lower than expected, but consumer spending growth also moderated. While this can be a positive development for inflation control, it might also weaken a significant driving force that has kept the U.S. economy afloat.
The resumption of U.S. student-loan repayments is another factor that could divert funds away from consumer spending, affecting the economy’s stability.
Oil prices have surged to their highest levels in over a year, exerting pressure on the economy by elevating fuel costs. Early Monday, U.S. crude oil prices increased by 34 cents to reach $91.13 per barrel in electronic trading on the New York Mercantile Exchange. Despite a 92-cent decline on Friday to settle at $90.79, prices remain significantly higher than the $70 level seen in June.
Brent crude, the global benchmark, also experienced a 32-cent rise to reach $92.52 per barrel.
The upcoming week includes the release of the latest monthly U.S. jobs market update, with significant reports on inflation scheduled for the following week. Any postponements of these reports could complicate matters for the Federal Reserve, which has emphasized making interest rate decisions based on incoming economic data. The Fed’s next rate decision meeting is scheduled to conclude on November 1.
In currency trading on Monday, the dollar strengthened against the Japanese yen, rising to 149.65 from 149.38 yen. Conversely, the euro weakened slightly, falling to $1.0575 from $1.0589.
