Asia Pacific Market Open – Italian Budget, US Bond Yields, US Dollar, ISM Services, Jerome Powell
- Uplifting Italian budget news began Fed rate hike bets as the US Dollar[1] broadly soared
- ISM services data and Fed Chair Jerome Powell speech further lifted Treasury yields
- Emerging markets were left vulnerable as tightening global credit conditions bodes ill
- Ahead, Asia Pacific shares may decline which may send AUD/USD[2] to a new 2018 low
We just released our 4Q forecast for the US Dollar in the DailyFX Trading Guides page[3]
What began on Wednesday with market optimism as Italy took a step towards reducing a potential budget conflict with the EU[4] ended up transpiring throughout the entire session. This seemed to have increased the chances that the Fed could proceed with tighter monetary policy as EU instability risk was reduced[5], offering the US Dollar broad gains as local government bond yields rose.
The 10-year and 30-year yield touched their highest since 2011 and 2014 respectfully, offering a reversal in the S&P 500[6] which left it little changed by market close. Increasing returns from haven assets, of which US Treasuries are a benchmark for, reduces the appeal of stocks. The latter are also dampened by hawkish monetary policy bets. It speaks to the central bank’s actions to tame growth before inflation gets out of hand.
US economic data outperforming also fuels this trading dynamic which was indeed the case Wednesday. A record breaking ISM services sector outcome[7] added more gains to the US Dollar. This was then
