(Bloomberg) — Treasuries advanced, while major Asian equity markets were mixed and European shares appeared set for a softer open in light of lackluster corporate earnings.
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South Korean and Japanese shares fell, sending MSCI’s Asian index lower. European futures declined amid uncertainty about the path of interest rates on both sides of the Atlantic. Weak company earnings added to the headwinds for Europe’s markets, with Remy Cointreau SA cutting its sales guidance due to slack US sales on Friday.
Mainland China and Hong Kong shares rallied, while American equity futures were little changed.
Treasury yields fell for a second day as traders reassessed bets on US rate cuts and risks from the upcoming presidential election. The dollar was steady, on track for a fourth straight weekly gain.
A surge in Treasury yields earlier in the week had led to risk-off moves across markets, as traders scaled back expectations for Federal Reserve rate cuts. The views among European Central Bank ratesetters are also starting to diverge. Economic data next week including the monthly payrolls report will provide more clarity, while polls on the presidential election show a tie between Donald Trump and Kamala Harris in swing states.
“We have seen this upward move in terms of US Treasury yields actually supporting the dollar index,” said Carie Li, global market strategist, DBS Bank Hong Kong, speaking on Bloomberg Television. “After the election we are still expecting the dollar index to trend lower because we expect the Fed will further cut interest rates no matter who wins.”
The yen was stuck in a range against the dollar ahead of the weekend’s election that may see Japan’s ruling coalition lose its majority in the lower house of parliament for the first time since 2009. Such an outcome would weaken the yen and Japanese stocks, according to strategists.
Moreover, Governor Kazuo Ueda signaled the central bank won’t hike interest rates next week, with almost all BOJ watchers already expecting no policy shift this month. Ueda spoke after the yen slid to the lowest level since July 31 against the dollar earlier this week.
Elsewhere in Asia, China’s central bank kept its one-year policy rate unchanged, after slashing funding costs by the most on record a month ago, suggesting authorities are cautiously pacing monetary stimulus to support the economy.