Asian Morning Briefing: U.S. Stocks Fall on Rate-Move Comments

 


LAST    CHANGE   % CHG 
DJIA                 17550.69   -47.51  -0.27% 
Nasdaq                5105.55    -9.84  -0.19% 
S&P 500               2093.32    -4.72  -0.22% 
Japan: Nikkei 225    20520.36   -27.75  -0.14% 
Hang Seng            24406.12     -5.3  -0.02% 
Shanghai Composite    3756.54   133.64   3.69% 
S&P BSE Sensex       28071.93  -115.13  -0.41% 
Australia: S&P/ASX     5697.9     18.6   0.33% 
UK: FTSE 100          6686.57    -2.05  -0.03% 
 
 
                    PRICE CHG  YIELD 
U.S. 2 Year             -4/32   0.74 
U.S. 5 Year            -13/32  1.604 
U.S. 10 Year           -20/32  2.223 
Australia 10 Year        6/32  2.748 
China 10 Year            3/32   3.53 
India 10 Year           -2/32  8.013 
Japan 10 Year            7/32  0.391 
German 10 Year          -3/32  0.604 
 
 
                          LAST(MID)  CHANGE 
Australia $ (AUD/USD)        0.7375   0.0089 
Yen (USD/JPY)                124.35     0.31 
S. Korean Won (USD/KRW)      1169.3    -1.74 
Chinese Yuan (USD/CNY)       6.2121   0.0009 
Euro (EUR/USD)               1.0881  -0.0069 
WSJ Dollar Index              89.07     0.21 
 
 
               LAST   CHANGE  % CHG 
Crude Oil      45.92    0.75   1.66% 
Brent Crude    50.18    0.66   1.33% 
Gold          1087.3    -2.1  -0.19% 
 

        MARKETS AT A GLANCE
        (Data as of approximately 5 p.m. ET)
        SNAPSHOT:
        U.S. stocks and bonds fell Tuesday, and the dollar rose against the euro and yen, after the Fed's Dennis Lockhart said the economy is ripe for a rise in short-term interest rates. Oil prices rose on expectations that inventory data due Wednesday would show U.S. crude-oil supplies fell last week. Gold futures nudged higher.
        OPENING CALL:
        China took another step to curb volatility in its stock markets, moving to clamp down on short selling in the country. Under new rules, short sellers must wait at least one day to cover their positions and pay back loans used to buy shares. Previously, investors could cover their positions within the same day, a practice China's stock exchanges said tends to "add to abnormal volatility of stock prices and affect market stability."
        The new rules may help discourage short selling because they effectively force investors to keep their bets open overnight and leave them vulnerable to any new stimulus measures introduced by Beijing before trading resumes.
        But Li Lei, an analyst at China Minzu Securities, said the revision is expected to have limited impact on the market, due to the small scale of short selling. "Securities firms and listed firms have little incentive to develop short selling trade, for fear of dragging down stock prices," added Mr. Li.
        EQUITIES:
        U.S. stock indexes slipped after Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy is ripe for a rise in short-term interest rates.
        The Dow Jones Industrial Average fell 47.5 points, or 0.3%, to 17550.69. The S&P 500 lost 4.72 points or 0.2% to 2093.32, while the Nasdaq Composite fell 9.4 points, or 0.2%, to 5105.55.
        "I think there is a high bar right now to not acting, speaking for myself," Mr. Lockhart said in an interview with The Wall Street Journal.
        Tuesday's slide extended the Dow industrials' declines to four trading sessions and the S&P 500's losing streak to three sessions.
        Investors have been parsing economic data, from wage growth to unemployment figures, for clues on when the Federal Reserve could begin raising rates for the first time in nearly a decade. Many are focused on the government's employment report for July due Friday.
        "Until [the Fed raises rates], it's just going to be constant speculation," said Kenny Polcari, director at O'Neil Securities. Mr. Polcari added that even a quarter-percentage-point increase wouldn't be enough to dissuade investors from favoring stocks.
        "Just because they're going up to 25 basis points doesn't mean they're going to 8%," Mr. Polcari said. "Twenty-five basis points is not going to destroy anyone. I think it's too minimal."
        In corporate news, shares of Baxalta ended 11.9% higher at $37.10 after Dublin-based Shire said it offered to acquire the rare-disease treatment maker for about $30.6 billion. Deerfield, Ill.-based Baxalta rejected the proposal, saying it undervalued the company.
        China shares ended higher Tuesday after officials announced fresh steps to rein in short selling, while commodities weakness spread to some Asian currencies, including the Malaysian ringgit.
        FOREX:
        The dollar rose against the euro and the yen after Federal Reserve Bank of Atlanta President Dennis Lockhart raised market expectations for higher borrowing costs in the coming months.
        Mr. Lockhart, a voting member on the Fed's monetary-policy committee, told The Wall Street Journal that only a "significant deterioration in the economic picture" would keep him from voting for the central bank to raise short-term U.S. interest rates for the first time since 2006. The message sparked dollar-buying Tuesday afternoon.
        Investors regard Mr. Lockhart as a centrist among Fed officials, so his words sent a strong signal that the Fed is moving closer to raising interest rates at its September meeting.
        The dollar, which had moved little throughout Tuesday's session, increased 0.6% against the common currency. One euro bought $1.0891 in late-afternoon trade, on track to close at a two-week low. The dollar rose 0.2% versus the yen, to Yen124.28, heading for its strongest closing value since July 20.
        Following Mr. Lockhart's comments, the U.S. two-year bond yield rose to 0.728%, its third highest closing this year. Bond yields rise as their prices fall. The rise in the U.S. two-year yield, in turn, pushed the dollar higher, said Brad Bechtel, managing director at Jefferies FX Group.
        "It's pretty clear [Mr. Lockhart] is angling for a September move, unless something drastic happens with U.S. data," Mr. Bechtel said. "This was a positive for the dollar. Any data point in the U.S. will sway prices in the front end of the yield curve, and that's going to drive the dollar."
        BONDS:
        U.S. government bonds suffered the biggest one-day selloff in nearly a month, nearly sending the yield on the two-year note to its highest of the year, after comments from a top Federal Reserve official raised anxiety over an interest-rate increase next month.
        Federal Reserve Bank of Atlanta President Dennis Lockhart told The Wall Street Journal on Tuesday that the economy is ready for the first increase in short-term interest rates in more than nine years, and that it would take a significant deterioration in the data to convince him not to make a move in September. Mr. Lockhart votes on interest-rate policy this year.
        The selloff reversed the bond market's rally on Monday and the price swings illustrate how investors are sensitive to the Fed's interest-rate outlook.
        Ultralow interest rates since the 2008 financial crisis have stoked a rally in the $12.7 trillion market for U.S. government bonds and other credit markets. Many investors are concerned that the start of a tightening cycle will send bond prices lower and yields higher. Higher rates make interest rates on existing bonds relatively unattractive.
        Falling bond prices sent the yield on the two-year note to 0.728% in late afternoon trading, compared with 0.665% on Monday.
        The yield had settled at 0.733% on June 10, the highest closing level since Dec. 26. Yields rise as prices fall.
        Yields on short-term Treasury notes are more sensitive to changes in the Fed's short-term rate outlook. Yields on longer-dated bonds are influenced by a variety of factors, including inflation, which chips away at bonds' fixed return over time.
        The yield on the benchmark 10-year Treasury note was 2.211% Tuesday, up from a two-month low of 2.15% on Monday.
        "It is not a huge leap of faith to move rates off zero given where the labor market is," said Thomas Roth, executive director in the U.S. government bond trading group at Mitsubishi UFJ Securities (USA), noting that Mr. Lockhart's remarks suggest a relatively low bar for the Fed to tighten monetary policy.
        COMMODITIES:
        Oil prices rose on expectations that inventory data due Wednesday would show U.S. crude-oil supplies fell last week.
        Concerns about an economic slowdown in China, coupled with persistently high production from some of the world's biggest petroleum suppliers, have soured investor sentiment in recent weeks. Oil prices plunged into a bear market last month and have continued to fall in August.
        Prices rose slightly Tuesday after sinking to multimonth lows on Monday. Light, sweet crude for September delivery settled up 57 cents, or 1.3%, at $45.74 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 47 cents, or 0.9%, to $49.99 a barrel on ICE Futures Europe.
        Analysts surveyed by The Wall Street Journal expect the U.S. Energy Information Administration to report Wednesday that U.S. crude-oil supplies fell by 1.5 million barrels last week. The closely watched weekly EIA report is due at 10:30 a.m. EDT on Wednesday.
        Analysts said oil prices could have further to fall in the near term. The market remains oversupplied, and demand typically declines at the end of the busy summer-driving season.
        Money managers including hedge funds have cut back on bets that oil prices would rise in recent weeks.
        "Investor sentiment is going from bad to worse," said Citigroup analysts in a note. "Nothing points to a near-term alleviation of the material oversupply in the market."
        Gold futures nudged higher, as a weaker dollar and a rally in crude oil and other commodities lent support.
        TODAY'S HEADLINES:
        Lockhart Says Fed 'Close' to Being Ready for Rate Rise
        (MORE TO FOLLOW) Dow Jones Newswires

        August 04, 2015 17:30 ET (21:30 GMT)
        Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy is ready for the first increase in short-term interest rates in more than nine years and it would take a significant deterioration in the data to convince him not to move in September.
        Disney Profits Boosted by 'Avengers', 'Frozen'
        Disney's earnings rose a better-than-expected 11%, boosted in part because of the latest "Avengers" film and the continued popularity of merchandise related to the "Frozen" film.
        Travelers CEO Fishman Stepping Down
        Travelers Chief Executive Jay S. Fishman is stepping down Dec. 1, handing over his job to Alan D. Schnitzer, who runs the company's largest segment.
        Shire Mounts Bid Worth $30 Billion For U.S. Biotech
        Dublin-based Shire made a hostile offer worth $30.6 billion for rare-disease-treatment maker Baxalta, the latest example of a foreign company using its tax-friendly status to go after a U.S. firm.
        DreamWorks Animation Loss More Than Doubles
        DreamWorks Animation loss more than doubled in the second quarter, as the studio struggles to revamp operations.
        Judge Rejects Proposed Settlement Between AmEx and Merchants
        A federal judge rejected a proposed $79 million class-action settlement between American Express and a group of merchants, citing a recent discovery that two opposing lawyers in the case had exchanged confidential documents.
        Pfizer-Hospira Merger Gets EU Green Light
        Pfizer's $16 billion merger with Hospira has been signed off by European Union regulators after Pfizer agreed to make divestments designed to guard against price rises and protect the research and development of drugs.
        IMF Says Ukraine Bailout Faces 'Significant Uncertainty'
        Ukraine's bailout faces "significant uncertainty" even if the government is able to secure a debt-restructuring deal, the International Monetary Fund warned.
        SEC Set to Approve CEO Pay-Gap Disclosure Rule
        Regulators are set to approve a contentious new rule requiring companies to disclose the pay gap between rank-and-file employees and the chief executive.
        Soros Fund Management Chief Investment Officer Bessent to Depart
        The head of George Soros' investment firm is departing to start his own hedge-fund firm, according to an internal memo reviewed by The Wall Street Journal.
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        TODAY'S CALENDAR
        (Times in GMT, followed by country and event)
        2100 SKA Jul International Reserves
        2245 NZ Q2 Household Labour Force Survey
        2245 NZ Q2 Quarterly Employment Survey
        2245 NZ Q2 Labour Cost Index (Salary & Wage Rates)
        2330 AUS Jul Australian PSI
        0030 TAI Jul Price Indexes (CPI / WPI)
        0100 PHI Jul CPI
        0135 JPN Jul Japan Services PMI
        0145 CHN Jul China Services PMI
        0200 AUS Jul VFACTS vehicle sales
        0230 HK Jul Hong Kong Whole Economy PMI
        0400 INA Q2 GDP
        0401 MAL Jun External Trade
        0500 IND Jul India Services PMI
        0700 THA Bank of Thailand Monetary Policy Committee meeting and decision
        0700 EU ECB Governing Council non-monetary policy meeting
        0745 ITA Jul Italy Services PMI
        0750 FRA Jul France Services PMI
        0755 GER Jul Germany Services PMI
        0800 EU Jul Eurozone Services PMI
        0800 ITA Jun Industrial Production
        0820 TAI Jul International Reserves
        0830 UK Jul UK Official Reserves
        0830 UK Jul CIPS / Markit Services PMI
        0830 UK Jul Narrow money (Notes & Coin) and reserve balances
        0900 EU Jun Retail trade
        1100 US 07/31 MBA Weekly Mortgage Applications Survey
        1215 US Jul ADP National Employment Report
        1230 US Jun U.S. International Trade in Goods & Services
        1230 CAN Jun International merchandise trade
        1300 US U.S. Department of the Treasury's quarterly refunding announcement
        1345 US Jul US Services PMI
        1400 US Jul Online Help Wanted Index
        1400 US Jul ISM Non-Manufacturing Report on Business
        1430 US 07/31 EIA Weekly Petroleum Status Report
        1500 US Jul Global Services PMI
        (END) Dow Jones Newswires

        August 04, 2015 17:30 ET (21:30 GMT)

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