Euro Hits 17-Month Low as France's Debt Worries Weigh
Asian markets saw gains on Monday as investors scaled back expectations of a Federal Reserve rate hike in October. The euro, meanwhile, hit a 17-month low due to concerns over France's rising debt levels and political uncertainty ahead of next year's presidential election. The euro dropped more than 0.8% to $1.1161 in early Asian trading before recovering slightly to $1.1178. The currency has lost roughly 2.5% last month, with investors demanding higher premiums for holding French 10-year bonds over German ones, stoking broader worries across European markets.
"We're starting to see some cracks in overall euro sentiment," said Bart Wakabayashi, branch manager at State Street in Tokyo. "Real money are selling euro against the dollar very aggressively." French OAT futures fell 0.23%, while German bund futures edged up 0.1%. The dollar gained support from elevated US Treasury yields, pushing it up 0.5% against a basket of currencies to 102.39. Sterling slipped 0.23% to $1.3207, and the yen fell 0.15% to 158.10 per dollar.
Bonds held steady, with benchmark 10-year US Treasury yields retreating slightly to 5.2686%, while two-year yields stood at 4.8101%. Investors remain cautious about buying US Treasuries without "a material improvement" in the Middle East conflict. Asian trading was thin due to holidays in China, South Korea, and Australia's New South Wales, but equity markets followed Wall Street's positive moves from Friday. US job growth data showed slower-than-expected growth in September, reducing the likelihood of a Fed rate hike this month.
The Nikkei in Japan rose 2%, and MSCI's Asia-Pacific shares outside Japan advanced 0.9%. Nasdaq futures were flat, while S&P 500 futures eased 0.1%. EUROSTOXX 50 and DAX futures dipped slightly, though FTSE futures gained 0.26%. "Labour conditions are stable overall, but Friday's downward revisions signal that the US economy has lost jobs in two out of the nine months year to date," said Jose Torres, senior economist at Interactive Brokers. Investors now see less than a 20% chance of a Fed rate hike in October, down from 64% a week ago, though a December hike is still expected.
In Brazil, markets are set to rise later in the day after Senator Flavio Bolsonaro advanced to the presidential runoff election. Oil prices fell slightly as rising Middle East crude exports and G7 stock releases boosted supplies. Brent crude futures dropped 0.5% to $101.75 per barrel, and US crude slid 0.9% to $90.29 a barrel. Spot gold fell 0.24% to $4,132.33 an ounce.