Singapore market trends Friday: Markets turn risk off as US Treasury yields rise

U.S. one-dollar and five-dollar currency notes; taken September 2018.U.S. one-dollar and five-dollar currency notes; taken September 2018.

Singapore’s shares may lose ground in the last trading session of the week, with negative leads from Wall Street and early Asia trading as traders fretting over higher U.S. Treasury yields turn risk off.

Scotiabank pointed to three factors driving a risk-off tone in the markets.

First, there’s Federal Reserve chief Jerome Powell’s “fist-pumping of the U.S. economy” in a speech on Wednesday, Scotiabank said in a note on Thursday.

“His aggressively positive take on the U.S. economy questions the consistency between Fed communications that emphasize ‘gradual’ hikes versus his efforts to talk up the economy and bond yields, whether intentional or not,” the note said.

Secondly, Scotiabank noted markets are awaiting U.S. nonfarm payrolls data later on Friday, and it noted that a “very strong” figure is expected. That could signal inflation pressures that would spur the Fed into action.

Scotiabank’s third factor was a high demand for year-end dollar funding. It noted that foreign-exchange hedging costs have risen for investors hoping to play the yield differential between Treasurys and European and Japanese government bonds, which makes the yield differential for Treasurys “vaporize.”

That has the potential to hurt foreign demand for U.S. Treasurys, which had been holding back increases in their yields even as U.S. debt issuance is rising, Scotiabank said.

Higher U.S. Treasury yields make the relative safety of government bonds more attractive when compared with stocks, as well as potentially increasing borrowing costs and interest expenses for companies.

Indexes

Japan’s Nikkei 225 fell 0.84 percent at the open on Friday, while South Korea’s Kospi was down 0.50 percent.

Singapore’s Straits Times Index fell 1.10 percent to 3231.59 on Thursday; October futures for the index were at 3234 on Thursday, while November and December futures were at 3237 and 3235 respectively.

Hong Kong’s Hang Seng Index fell 1.73 percent to 26,623.869 on Thursday; China remained closed for its week-long holiday.

The Dow Jones Industrial Average lost 0.75 percent to close at 26,627.48, the Nasdaq fell 1.81 percent to 7879.51 and the S&P 500 shed 0.82 percent to 2901.61. Futures for the three indexes were a tad higher in early trade.

Currencies

The U.S. dollar index, which measures the buck against a basket of currencies, was at 95.76 at 6:05 A.M., down from as high as 96.10 in Thursday’s session, but also off levels as low as 95.58 according to ICE futures data.

The 10-year U.S. Treasury note yield was at 3.195 percent at 7:59 A.M. SGT, off levels as high as 3.227 percent in Thursday’s session, according to Tullett Prebon data.

The euro/dollar was at 1.1516 at 8:03 A.M. SGT after trading in a range of 1.1462 to 1.1512 on Thursday as the pair has headed lower since late September, according to DZHI data.

The dollar/yen was at 113.895 at 8:05 A.M. SGT after trading in a range of 113.60 to 114.55 on Thursday as the pair has climbed from as low as 110.36 in early September, according to DZHI data.

The dollar/yuan ended Thursday at 6.8679 after setting a tight 6.8650 to 6.8688 range during the holiday session, according to DZHI data.

The dollar/Singapore dollar was at 1.3802 at 8:07 A.M. after trading in a 1.3777 to 1.3828 range on Thursday after climbing steadily from its September low of 1.3605, according to DZHI data.

The dollar/Indonesian rupiah was at 15,165 at 6:30 A.M. SGT after trading in a 15,070 to 15,190 range on Thursday, according to DZHI data.

Oil

Nymex WTI crude oil futures for November were up 0.44 percent at US$74.66 a barrel at 7:25 A.M. SGT, while ICE Brent crude futures for December were down 1.98 percent at US$84.58 a barrel at 5:58 A.M. SGT, according to Bloomberg data.

Read more: Crude mixed ahead of Asia open as Baker Hughes data awaited

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