Asian stocks rose and bonds stabilized after a sharp sell-off, as traders awaited a key US inflation reading for clues on the path of interest rates. The dollar is on track for its best month since June.
The MSCI Asia Pacific index rose 0.8%, with 10 of its 11 industry groups advancing. Shares of SoftBank Group, an investor in OpenAI, jumped 6% after people familiar with the matter said the AI startup is seeking to raise at least $30 billion in new funding, at a valuation of $1.4 trillion.
Bonds remained in focus after yields on longer-term US Treasury notes reached their highest levels since 2002 during the New York session. Yields stabilized across the maturity curve after rising earlier in the week, as the surge in oil prices prompted traders to price in further interest rate hikes by the Federal Reserve.
Recovery of oil flows from the region
Brent crude rose 0.5% to around $103.10 a barrel, recovering some of Tuesday's losses. Crude oil flows from the Middle East have almost returned to pre-war levels, although shipping risks persist, according to JPMorgan Chase.
Oil prices and tensions between the United States and Iran remain key sources of uncertainty, as markets look for clearer signs of progress in negotiations following conflicting signals in recent days.
Global bond yields have risen to multi-year highs, as rising energy costs threaten to keep inflation going and reinforce expectations of further interest rate hikes by the Federal Reserve.
Arjun Vij, a fund manager at JPMorgan Asset Management, said: The bond sell-off could stop for one of the following reasons: a quick resolution to the conflict between the United States and Iran, or a significant drop in stock prices driven by a slowdown in actual economic data, or a decline in earnings and future guidance.
Bonds under pressure from interest rate and inflation bets
Yields on 30-year U.S. Treasury bonds rose for a sixth straight day on Tuesday, as investors demanded a higher return for holding the securities amid concerns about persistent inflation, increased government spending, and a surge in corporate borrowing to fund the expansion of artificial intelligence.
Traders are increasing their bets on continued rises in Treasury yields, raising the risk of a sudden unwinding of these positions at the first sign of a significant economic slowdown. Financial markets are pricing in a series of interest rate hikes over the next year.
Elsewhere, shares of Chinese real estate companies fell after Beijing launched a mortgage support program that analysts said fell short of expectations.
The Bloomberg Dollar Index held steady, on track for its best month since June, after the Federal Reserve's renewed focus on curbing inflation boosted expectations for US interest rates and bond yields. Elsewhere, the yen rose 0.4% to 156.69 against the dollar.
Awaiting US data
Traders' attention will now turn to Wednesday's reading of personal consumption expenditures from the Bureau of Economic Analysis, the Federal Reserve's preferred inflation gauge.
The August personal income and expenditure report is expected to show an acceleration in both headline and core monthly inflation, according to Bloomberg Economics.
Tim Waterer, chief market analyst at KCM Trade, wrote in a note that any upside surprises would reinforce the Federal Reserve's hawkish stance and bolster the case for further monetary tightening. He added that weaker figures could raise questions about the need for a subsequent rate hike in October and might dampen some of the momentum from the recent surge in Treasury yields.
Waterer continued: Between the price of oil, bond yields, and key US inflation and jobs data, there is plenty to watch over the rest of the week.
