By Wayne Cole
SYDNEY, July 4 (Reuters) – Global share markets started in haphazard fashion on Monday as soft US data suggested downside risks for this week’s June payrolls report, while the hubbub over possible recession was still driving a relief rally in government bonds.
The search for safety kept the US dollar near 20-year highs, though early action was light with US markets on holiday.
Cash Treasuries were shut but futures TYc1 extended their gains, implying 10-year yields US10YT=RR were holding around 2.88% having fallen 61 basis points from their June peak.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was flat, after losing 1.8% last week. Japan’s Nikkei .N225 added 0.6%, while South Korea .KS11 fell 0.8%.
Chinese blue chips .CSI300 edged up 0.3%, though cities in eastern China tightened COVID-19 curbs on Sunday amid new coronavirus clusters.
EUROSTOXX 50 futures STXEc1 added 0.5% and FTSE futures FFIC1 0.8%. However, both S&P 500 futures ESc1 and Nasdaq futures NQc1 eased 0.7%, after steadying just a little on Friday.
David J. Kostin, an analyst at Goldman Sachs, noted that every S&P 500 sector bar energy saw negative returns in the first half of the year amid extreme volatility.
“The current bear market has been entirely valuation-driven rather than the result of reduced earnings estimates,” he added.
“However, we expect profit consensus margin forecasts to fall which will lead to downward EPS revisions whether or not the economy falls into recession.”
Earnings season starts of July 15 and expectations are being marked lower given high costs and softening data.
The Atlanta Federal Reserve’s much watched GDP Now forecast has slid to an annualized -2.1% for the second quarter, implying the country was already in a technical recession.
The payrolls report on Friday is forecast to show jobs growth slowing to 270,000 in June with average earnings slowing a touch to 5.0%.
RATES UP, THEN DOWN
Yet minutes of the Fed’s June policy meeting on Wednesday are almost certain to sound hawkish given the committee chose to hike rates by a super-sized 75 basis points.
The market 0#FF: is pricing in around an 85% chance of another hike of 75 basis points this month and rates at 3.25-3.5% by year end. FEDWATCH
“But the market has also moved to price in an aggressive rate cut profile for the Fed into 2023 and 2024, consistent with a growing chance of recession noted,” analysts at NAB.
“Around 60bps of Fed cuts are now priced in for 2023.”
In currencies, investor demand for the most liquid safe harbor has tended to benefit the US dollar, which is near two-decade highs against a basket of competitors at 105.100 =USD.
The euro was flat at $1.0429 EUR= and not far from its recent five-year trough of $1.0349. The European Central Bank is expected to raise interest rates this month for the first time in a decade, and the euro could get a lift if it decides on a more aggressive half-point move.
The Japanese yen also attracted some safe haven flows late last week, dragging the dollar back to 135.23 yen JPY=EBS from a 24-year top of 137.01.
A high dollar and rising interest rates have not been kind to non-yielding gold, which was pinned at $1,812 an ounce XAU= having hit a six-month low last week. GOL/
Fears of a global economic downturn also severed industrial metals with copper hitting a 17-month low having sunk 25% from its March peak. MET/L
Oil prices wobbled as investors weighed demand concerns against supply constraints. Output restrictions in Libya and a planned strike among Norwegian oil and gas workers were just the latest blows to production. O/R
Brent LCOc1 slipped 1 cent to $111.62, while US crude CLc1 eased 10 cents to $108.33 per barrel.
Asia stock markets https://tmsnrt.rs/2zpUAr4
(Reorting by Wayne Cole; Editing by Sam Holmes & Shri Navaratnam)
((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: email@example.com))
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