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Asian share markets were mostly in the red on Tuesday, while the US dollar began to edge higher once again aided by a media report that the Federal Reserve might take a rhetorical step towards tightening at its meeting next week.
Oil prices also extended their long crash with US crude hitting its lowest in five years amid a glut of supply and pressuring energy stocks globally.
Fed rate hike
Dealers said the dollar got a lift from a Wall Street Journal report that Fed official were seriously considering dropping an assurance that short-term interest rates will stay near zero for a “considerable time’’.
Such a move would be taken as a sign the central bank was on target to start raising interest rates around the middle of next year, a view that has gained great traction since last week’s upbeat payrolls report.
Yields on two-year Treasury debt has spiked to highs not seen since April 2011, while the whole yield curve has flattened markedly as investors wager Fed action will keep inflation low over the long run.
The rise in yields has in turn underpinned the dollar which nudged back up to 120.94 yen on Tuesday, having run into a bout of profit-taking the day before. The euro held steady on the dollar at $1.2305, not far from the recent two-year trough of $1.2247.
Asian markets
Asian stocks markets were mostly lower following a decline on Wall Street, though the losses were minor. MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.36 per cent.
Japan’s Nikkei eased 0.47 per cent, but that follows a run of strong gains which took it to its highest since July 2007. Chinese shares have also been on a tear with the CSI300 index of the largest listed companies in Shanghai and Shenzhen at levels last visited in 2011.
US stocks
On Monday, the Dow had lost 0.59 per cent, while the S&P 500 fell 0.73 per cent and the Nasdaq 0.84 per cent.
There was no respite for oil as US crude futures lost another 15 cents to $62.90 a barrel, while Brent dipped 7 cents to $66.12. Both tumbled more than 4 per cent on Monday on expectations that a deepening oil glut would keep prices under pressure into the New Year.
Crude oil, gold
Oil prices are likely to remain around $65 a barrel for the next six to seven months until the global economy recovers or OPEC changes its production policy, the head of Kuwait’s state oil company said.
The lack of inflationary pressure combined with a rising US dollar kept gold on the back foot. Spot prices were stuck at $1,200 on Tuesday after shedding a couple of bucks in the previous session.
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