Image: Bloomberg

European stock futures edged lower as traders positioned ahead of the data on Eurozone CPI and US job openings to gauge the central banks’ upcoming rate decisions.

Contracts on the Euro Stoxx 50 Index declined 0.1% even as Asian shares increased, led by gains in Japan and Hong Kong. The MSCI AC Asia Pacific Index hit its highest since late May amid a rally in Hong Kong-listed property and electric vehicle maker shares.

The 10-year Treasury yields pared some of the seven basis points gain on Monday, when the benchmark had approached 4.5% on speculation that a Trump presidency would lead to greater US fiscal deficits and higher inflation. That further drove the dollar’s gains, as the greenback strengthened against all of its Group-of-10 peers.

“The dollar is being supported by the jump in US Treasury yields overnight,” David Forrester, a senior strategist at Credit Agricole CIB, said. “The irony is that it is investor concerns about US fiscal sustainability that is driving US Treasury yields higher.”

After last week’s debate hurt Biden’s chances of winning reelection, Wall Street strategists — including the ones from Goldman Sachs Group Inc. to Morgan Stanley and Barclays Plc — are taking a fresh look at how a Trump victory could play out in the bond market and are urging clients to position for sticky inflation and higher long-term yields.

Back in Asia, a Japan equity benchmark inched closer to a record high, supported by financial stocks’ gains from the prospect of higher lending rates. Bank and insurance stocks in Japan were among the largest contributors to the Topix index’s gain, after domestic 10-year yields continued their rise above 1% on bets that the central bank will raise policy rates.

“Japan’s financials are strong with domestic 10-year yields approaching 1.1%,” said Sohei Takeuchi, a senior fund manager at Sumitomo Mitsui DS Asset Management Co Japanese stocks may be seeing some global demand after generally lagging emerging and European markets, he said.

The prospect of a Bank of Japan interest rate hike coming later this month increased after an index showed confidence among the nation’s large manufacturers rose from three months earlier. Vanguard sees the yen at risk of falling toward 170 per dollar if potential BOJ policy changes this month fail to boost the country’s bond yields.

In China, pessimism about the domestic economy has sparked a surge in demand for government debt. The central bank said it will borrow government bonds from primary dealers, a sign it may be contemplating selling securities to cool down the rally.

The yield on China’s benchmark bonds fell to a record low on Monday as investors worry about the long-term economic growth.

In Europe, European Central Bank President Christine Lagarde signaled that there is not sufficient evidence that inflation threats have passed, feeding expectations that officials will take a break from cutting interest rates this month. The euro was little changed after French election results suggested there’s a smaller probability of extreme policies coming from the far-right.

Meanwhile, Biden called on voters to “render a judgment” on Trump, after a Supreme Court ruling paved the way for the presumptive Republican presidential nominee to potentially escape prosecution for his role in the January 6 US Capitol riot.

The selloff in Treasuries “continued overnight as the rates market starts to price in a Trump election victory, which would likely see continued federal deficits and potentially higher inflation,” said Tony Sycamore, a market analyst at IG Australia. “Higher US Treasury yields will bring with it a stronger US dollar, both of which would be problematic for many Asian share markets.”

In commodities, oil traded near a two-month high on escalating Middle East tensions and concerns over the Atlantic hurricane season as Beryl is named a category 5 hurricane. Elsewhere, gold was little changed.

Key events this week:

• Eurozone CPI, unemployment, Tuesday
• US job openings, Tuesday
• Jerome Powell and Christine Lagarde speak at ECB forum in Portugal, Tuesday
• China Caixin services PMI, Wednesday
• Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
• US Fed minutes, ADP employment, ISM Services, factory orders, initial jobless claims, durable goods, Wednesday
• Fed’s John Williams speaks, Wednesday
• UK general election, Thursday
• US Independence Day holiday, Thursday
• Eurozone retail sales, Friday
• US jobs report, Friday
• Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.2% as of 2:30 p.m. Tokyo time
• Nasdaq 100 futures fell 0.3%
• Japan’s Topix rose 1.1%
• Australia’s S&P/ASX 200 fell 0.2%
• Hong Kong’s Hang Seng rose 0.4%
• The Shanghai Composite rose 0.2%
• Euro Stoxx 50 futures fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro fell 0.1% to $1.0728
• The Japanese yen fell 0.1% to 161.64 per dollar
• The offshore yuan was little changed at 7.3073 per dollar

Cryptocurrencies

• Bitcoin fell 0.4% to $62,988.03
• Ether fell 0.2% to $3,455.68

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.44%
• Japan’s 10-year yield advanced one basis point to 1.075%
• Australia’s 10-year yield advanced four basis points to 4.42%

Commodities

• West Texas Intermediate crude rose 0.1% to $83.49 a barrel
• Spot gold fell 0.2% to $2 328.13 an ounce

This story was produced with the assistance of Bloomberg Automation.