Today’s News

Emerging market central banks are joining their more developed peers in pushing back against expectations of a rapid switch to cutting interest rates, souring the outlook for developing nation bonds.

Traders have all but priced out the prospect of making easier monetary policies in Asia over the next 12 months, shimming expectations for lower borrowing costs in Latin America and central Europe, swaps data show. The shift has been driven by the “higher-for-longer” rhetoric from the Federal Reserve (Fed) as policymakers seek to support their currencies and the threat of El Niño stoking inflation.

The growing global hawkishness spells more trouble for emerging market local currency bonds after traders thought central bankers from richer nations would soon start reducing rates as economies slowed. A report of the debt dropped by 2% in August, marking it the worst month since February, while an index of emerging market currencies slipped by 1.5%.

On the Asia front, a hawkish trend is brewing as South Korea’s central bank has pledged to keep policy restrictive for “a considerable time,” convincing traders to price out a full 25 basis point cut over the next year. Bank of Indonesia said earlier in August that it would allow short term bond yields to rise to support the rupiah, a long way from shifting to an easing stance for now.

Other related reports include:

Stock Market Rally Set To Stoke Higher Bond Yields

This year’s U.S. stock market rally is strong enough to withstand another leg for higher for bond yields, according to the latest Markets Live Pulse survey.

With the soft-landing narrative for the world’s biggest economy gaining traction, the majority of 331 respondents expect losses for the S&P 500 Index to be contained to less than 10% should yields on the 10-year treasury resume their climb and achieve 4.5%. That would allow the U.S. equities benchmark to hold onto some of its 18% year-to-date gains at least.

Dollar Steadies With Optimistic Views

The dollar started the day on a steady footing as investors assessed the U.S. jobs data that showed some signs of cooling as it bolstered expectations that the Federal Reserve was likely at the end of its monetary tightening cycle.

Data on Friday portrayed that the U.S. job growth has picked up in August, but the unemployment rate jumped to 3.8%, while wage gains moderated. The economy created 110,000 fewer jobs than previously reported in June and July respectively.

Asia Stocks Rise On Fed Outlook

Asian stocks have reportedly edged higher as traders mulled over the optimism of the end of the Fed’s tightening cycle. Meanwhile, the U.S. markets are shut for the day for the Labor Day holiday.

Stocks rose at the open in South Korea and Australia, while holding onto small gains in Japan. Futures for Hong Kong equities were little changed, while those for the U.S. steadied after the S&P 500 Index eked out a gain on Friday to notch its best week since June. Tesla Inc. dropped over 5%, while energy shares rallied as oil topped at USD 85 a barrel, with West Texas Intermediate futures climbing for an eighth straight day.