Dollar, bond yields up on Fed rate risk

Reuters News
Posted: Aug 04, 2015 8:31 PM

By Wayne Cole

SYDNEY (Reuters) - Asian shares markets got off to a watchful start on Wednesday as the mounting risks of a hike in U.S. interest rates as early as next month lifted the dollar and sovereign bond yields, pressuring currencies across the region.

Moves were minor with Japan's Nikkei <.N225> off 0.1 percent

and South Korea's KOSPI <.KS11> up 0.1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> dipped 0.3 percent.

Losses on Wall Street had also been modest with the Dow <.DJI> ending Tuesday off 0.27 percent, while the S&P 500 <.SPX> eased 0.22 percent and the Nasdaq <.IXIC> 0.19 percent.

Leading the way were shares in Apple <AAPL.O> which hit their lowest in over six months, apparently in part on worries about demand in China.

The latest scare over U.S rates came when Atlanta Federal Reserve President Dennis Lockhart told the Wall Street Journal that it would take "significant deterioration" in the economy for him to not support a hike in September.

"Given that Lockhart is middle-of-the-road to slightly dovish, these comments from him really add a lot of weight to the notion that the Fed really wants to go in September," said analysts at Citi.

Investors reacted by narrowing the odds of a move next month, though Fed fund futures <0#FF:> still imply only around a 50-50 chance of a hike so soon.

Yields on two-year Treasury notes <US2YT=RR> jumped 5 basis points to 0.74 percent, so reversing all the fall that followed a surprisingly soft report on U.S. wages out last week.

The shift to higher rates in the United States has been sucking funds out of emerging markets, pressuring currencies from Brazil to Mexico to South Korea. The Malaysian ringgit was hit especially hard, striking lows not seen since 1998 <MYR=>.

The U.S. dollar also gained on its major counterparts, reaching 124.34 yen <JPY=> from a low of 123.77 on Tuesday. The euro recoiled to $1.0878 <EUR=>, from a top of $1.0988.

Against a basket of currencies, the dollar was up at 98.021 <.DXY> and threatening the July peaks around 98.151.

Commodity markets steadied after recent declines with sentiment aided by a bounce in Chinese stocks amid more talk of government stimulus.

The Thomson Reuters/CoreCommodity CRB index <.TRJCRB> rose 0.8 percent. Brent oil <LCOc1> added 16 cents to $50.15 a barrel and U.S. crude <CLc1> gained 14 cents to $45.88.

(Reporting by Wayne Cole; Editing by Eric Meijer)