Global shares were on steadier footing on Wednesday, helped by an overnight rebound on Wall Street as a brief selloff in bond markets and cryptocurrencies abated. Bitcoin reclaimed the $90,000 level and hit a two-week high while Nasdaq and S&P 500 futures rose 0.2% each.
EUROSTOXX 50 futures were 0.3% firmer, while FTSE futures added 0.1%. Calm was restored to markets on Wednesday after an ugly start to the week, where expectations of a looming rate hike in Japan triggered a global bond selloff and exacerbated a slide in cryptocurrencies, leaving stocks caught in the rush from risk assets.
"The narrowing in spreads and movement in the yen may have resurfaced some of the carry trade fears and unwinding of leverage positions," said Kerry Craig, global market strategist at J.P. Morgan Asset Management, referring to the prospect of falling rate differentials between the U.S. and Japan.
"Rightly or wrongly there was a period when the performance of crypto was being used as a gauge for risk sentiment, but we also know that the market is sensitive to broader liquidity conditions." Japan's Nikkei (.N225), opens new tab rose 1.5%, while MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab eased 0.12%, weighed down by losses in Chinese markets.
China's CSI300 blue-chip index (.CSI300), opens new tab fell 0.26% while Hong Kong's Hang Seng Index (.HSI), opens new tab lost 1.2%, as China's slowing services growth added to worries about an economy grappling with a prolonged property slump.
In bond markets, moves in Japanese government bonds (JGBs) were more orderly on Wednesday, though they continued to face downward pressure as investors ramped up bets for a Bank of Japan rate hike later this month. The 10-year JGB yield hit its highest since June 2008 at 1.885%, while the two-year yield rose one basis point to 1.015%. Bond yields move inversely to prices. The two-year U.S. Treasury yield was down 1.6 bps to 3.500%. The benchmark 10-year yield steadied at 4.081%.
"I just can't see any reason why (equities) won't be well supported into the FOMC rate cut next week, and I think then you start to hit that really nice sweet spot in mid-December when equity markets just rally," said Tony Sycamore, a markets analyst at IG. December has historically been a good month for stocks.
Investors have also been pricing in a more dovish Fed outlook, on the view that White House economic adviser Kevin Hassett, reportedly the frontrunner to become the next chair, would deliver further rate cuts once he succeeds Jerome Powell.
U.S. President Donald Trump said on Tuesday he would announce his Fed chief nominee early next year, and that he has narrowed the list to one person. That has in turn kept the dollar on the back foot, leaving the euro 0.14% firmer at $1.1642. Sterling also rose 0.16% to $1.3236, while the dollar fell 0.14% against the yen to 155.66.
