Common Factors Drive Global Bond-Market Selloff — Market Talk

0924 GMT - The selling pressure across global bond markets has been driven by common factors, The Investment Institute by UniCredit's Francesco Maria Di Bella says in a note. These include the inflation shock due to the war in the Middle East, still-resilient economic data and abundant supply coming from public and private investment, the fixed-income strategist says. Bond valuations have also been affected by more idiosyncratic factors, such as substantial fiscal expansion expected in Japan and fiscal risks in the U.K., he says. ([email protected])0903 GMT - The euro falls to a one-month low against a strengthening dollar as markets price in a high possibility of the U.S. Federal Reserve increasing interest rates at its decision on Wednesday. Following Friday's strong U.S. CPI inflation data, investors price an 87% probability of the Fed raising rates this week, LSEG data show. The European Central Bank increased interest rates last week but attention will now turn to further evidence on state of the eurozone economy, including Tuesday's German ZEW survey. "With the ECB placing greater emphasis on high-frequency indicators, [the] German ZEW survey will be closely watched," ING's Francesco Pesole says in a note. The euro falls 0.5% to low of $1.1533, LSEG data show. ([email protected])0846 GMT - Sterling falls to an 11-day low against the dollar as markets await interest-rate decisions by the U.S. Federal Reserve and the Bank of England on Wednesday and Thursday, respectively. Markets price in an 87% chance that the Fed could raise interest rates this week, LSEG data show, causing the dollar to strengthen versus other major currencies. The BOE meanwhile is expected to leave rates on hold. Investors price in a 67% probability of rates staying unchanged. There are few catalysts that would drive a rally in sterling currently, RBC BlueBay Asset Management's Mark Dowding says in a note. Sterling falls 0.3% to a low of $1.3476, LSEG data show. ([email protected])0845 GMT - Crypto markets await a vote this week that decides whether the Senate will begin debating the Clarity Act. A lack of progress this quarter risks crypto slipping down the policy agenda ahead of midterms, says Sygnum CIO Fabian Dori. The vote outcome turns on whether at least seven Democrats or independents are satisfied on issues around ethics and stablecoin yields. Sygnum's research argues that the core market-structure framework is largely settled and the dispute holding up the act is political. More delays could happen if leadership pulls the vote if the count is short, or the bill stalls in amendments and reconciliation with the House text. With roughly two working weeks before the midterm campaign closes the floor, a slip past September is in effect a deferral to the next Congress, Dori says. ([email protected])0833 GMT - The upcoming Senate cloture vote is the crypto Clarity Act's most immediate obstacle, says Andrew Melville, head of research at institutional crypto derivatives data and analytics firm Block Scholes. The Sept. 15 vote can end the debate on the motion to proceed and begin the process of bringing the crypto bill for a final vote. Melville notes that the bill is also up against tight session timelines interrupted by the Midterm elections. The version being debated in the Senate also has significant revisions and must be reconciled with the version the House passed before President Trump can sign off on it. "If the measure is not enacted before the 119th Congress ends on 3 January 2027, it will expire and must be reintroduced in the new Congress." ([email protected])0826 GMT - There's a lot of optimism around the cryptocurrency industry's Clarity Act after progress on ethics provisions, but it remains a political hot potato, says Nic Puckrin, cross-asset analyst and founder of Coin Bureau. Senate Republicans have released a draft of the legislation they say reflects bipartisan negotiations and 126 substantive changes requested by Democrats. But Puckrin says it's not only the Democrats who have to be convinced. "There are also Republicans who oppose stablecoin yield rules and are concerned about the impact on community banks." He still thinks the act is unlikely to pass this year. There's a longer road ahead, and that will likely put a cap on any relief rally. ([email protected])0803 GMT - Malaysia's Budget 2027 is expected to be mildly positive for markets, although tight public finances leave limited room for major spending increases, RHB analyst Alexander Chia says in a note. The proximity of the next general election raises expectations for measures supporting households, and social assistance should benefit the consumer staples, property, transport and healthcare sectors. However, if the general election is held before the budget is passed, the incoming administration could review and retable the budget, as happened with Budget 2023, he says. External risks could limit market upside, although strong domestic liquidity should provide downside support, he adds. RHB maintains its end-2026 KLCI target at 1750. The KLCI is 0.5% higher at 1695.74. ([email protected])0749 GMT - Gold futures trade 1.1% lower at $4,360 a troy ounce in morning trade in Europe as expectations the U.S. will hike interest rates solidify. Higher rates weigh on nonyielding assets like gold. The impact of a rate hike cycle on gold is likely limited compared to historical cycles, ANZ analysts write. This is because the rate hikes are to contain conflict induced inflation, they say. Should the Federal Reserve turn more hawkish due to sustained higher inflation, strong economic activity and AI-linked investments, gold will likely come under more pressure, they say.([email protected])0738 GMT - Yields on U.K. government bonds, or gilts, rise due to concerns about inflation as oil prices climb further. Widening conflict in the Middle East and further disruptions to the oil supply routes have caused oil prices to surge, raising the risk of elevated global inflation. Increased prospects of the Federal Reserve raising interest rates this week also push government-bond yields higher. Ten-year gilt yields climb 1.1 basis points to 5.369%, having hit a 19-year high of 5.4056% on Friday, LSEG data show. ([email protected])0725 GMT - Eurozone government bond yields edge higher with the 10-year Bund yield hitting a new 15-year high of 3.532% in early trade, Tradeweb data show. Yields are pushed higher by data pointing to economic resilience, as well as high oil prices and inflation concerns as the Middle East situation continues to escalate. As markets continue to absorb the European Central Bank's rate increase last week, focus turns to the Federal Reserve's interest-rate decision on Wednesday, where a hike is a possibility but not a done deal. ([email protected])0714 GMT - Bitcoin edges higher, trimming last week's declines caused by increased expectations of the U.S. Federal Reserve raising interest rates during Wednesday's policy decision. Higher rate-rise expectations have boosted the dollar and reduced the rally in dollar-alternative assets. However, bitcoin remains well below the psychologically important $80,000 level. Bitcoin rises 0.3% to $77,590, below the three-month high of $82,163 reached on September 4, LSEG data show. ([email protected])0643 GMT - The dollar rises to an 11-day high against a basket of currencies, buoyed by increased prospects of an interest-rate hike at this week's Federal Reserve meeting and by higher oil prices. Strong U.S. consumer-price inflation data last week came on the heels of strong U.S. jobs data, leading money markets to price in an 87% chance that the Fed will raise rates when it announces a decision on Wednesday, LSEG data showed. Meanwhile, intensifying Middle East tensions lift oil prices, benefiting the dollar due to its safe-haven status and because the U.S. is an oil exporter. The DXY dollar index rises 0.3% to a high of 99.453. The euro falls to a one-month low of $1.1549, LSEG data show. ([email protected])