Stocks drop on Fed rate hike bets, yen hits 24-year low

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LONDON (Reuters) – European stock markets fell on Wednesday after US economic data prompted traders to increase bets the Federal Reserve would raise interest rates, sending the dollar to a 24-year high against the Japanese yen.

US Treasury yields jumped and the dollar got a boost after data on Tuesday showed that the US service industry rebounded in August, boosting expectations of an interest rate hike by the Federal Reserve. Markets were setting 77% odds of a 75 basis point hike at the next Fed meeting. Read more

Markets were dealt another blow in Asian trading from data showing slowdown in Chinese export growth in August. MSCI’s broadest index of Asia Pacific shares outside Japan fell to its lowest level since mid-2020 (MIAPJ0000PUS.). Read more

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Chinese exports and imports lost momentum as rising inflation crippled external demand and new restrictions from the coronavirus and heat waves disrupted production, reviving downside risks for a shaky economy. Read more

“Government bond yields across the board are rising and this is putting pressure on stock markets,” said David Madden, market analyst at Equiti Capital.

“This also comes at a time when fears of a global economic slowdown are rising and bond traders expect further rate hikes.”

At 1134 GMT, the MSCI global stock index was down 0.4% on the day (.MIWD00000PUS)The European STOXX 600 Index was down 0.5%. (.stoxx). FTSE 100 in London down 0.5% (.FTSE).

Wall Street futures rose slightly after two sessions of losses. Read more

The US Dollar Index is up 0.3% on the day at 110.67, after hitting a 20-year high of 110.69 earlier in the session.

The 10-year US Treasury yield hit its highest level since mid-June at 3.365% before easing back a bit.

“I wouldn’t be surprised if the Fed started to worry a little bit about the strength of its local currency,” said David Madden of Equiti, who said a strong dollar could have a negative impact on US exports.

The Japanese yen hit 144.95 yen to the dollar, its lowest level since August 1998. The Japanese government said it wants to act if the “quick unilateral” moves in the currency market continue. Read more

The European Union proposed a cap on Russian gas prices on Wednesday, hours after President Vladimir Putin threatened to cut off all supplies if they took such a step, raising the risk of rationing in some of the world’s richest countries this winter. Read more

Eurozone government bond yields initially rose in early trading, based on expectations of a 75 basis point interest rate hike from the European Central Bank on Thursday, but then fell as traders backed away from these bets in response to several media reports, including That’s one of the reports that said a 50 basis point rate hike remains on the table.

The German 10-year bond yield came in at 1.595%, after earlier in the session hitting 1.645%, the highest since late June.

“This tough ECB stance has had a significant impact on global markets,” said Christina Huber, global market analyst at Invesco, in comments via email.

“This has led to higher bond yields across the Eurozone, but it can also be argued that it has contributed to higher US 10-year bond yields.”

The euro was down 0.2% at $0.9889, and the British pound was down 0.8% against the stronger dollar at $1.1429.

Liz Truss, who took office as Britain’s prime minister on Tuesday, pledged immediate action to help the economy, which is facing double-digit inflation and a prolonged stagnation expected. Read more

Showing correlation with mainstream financial markets, cryptocurrency bitcoin has fallen to its lowest level since mid-June, with the market capitalization of all cryptocurrencies dropping below $1 trillion, according to data provider CoinGecko.

The Bank of Canada is expected to announce a significant rate hike later on Wednesday as it struggles to curb inflation at its highest level in nearly four decades. Read more

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(Reporting by Elizabeth Hocroft) Editing by Angus McSwan and William MacLean

Our criteria: Thomson Reuters Trust Principles.

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