Morning Bid: Dollar feeds on stress

A look ahead for the day ahead in the US and global markets by Mike Dolan

A stressful start to a busy week for global markets saw the US dollar benefit from a sour brew of geopolitical, economic, international trade and corporate tensions.

Although US bond markets were partially closed on Monday for the Columbus Day holiday, Wall St implied volatility indicators (.VIX) rose again ahead of Thursday’s critical US CPI for September and the start of the third quarter earnings season. Continue reading

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The VIX “fear index” jumped nearly 3 points to above 33 early Monday — its highest for the month and at a level that would mark its highest close since June if sustained later in the day. And with a fourth 75 basis point Fed rate hike now fully priced in again, the dollar’s DXY index rose again – and traders began to eye year-end trade stress as well.

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Against the backdrop of the annual meetings of the International Monetary Fund and World Bank in Washington, the week began with further shocks from Russia’s faltering invasion of Ukraine and rising US-China trade tensions. read on read on

With the warning from Advanced Micro Devices (AMD.O) and Micron Technology (MU.O) in the ears of the last week, the chip industry shivered in the new week.

Shares in Chinese tech giants Alibaba Group (9988.HK) and Tencent (0700.HK) and the chipmaker slumped on Monday as investors were spooked by new US export controls aimed at slowing Beijing’s technological and military advances.

The Biden administration on Friday released a sweeping package of export controls, including a measure to cut off China from certain semiconductors made around the world with US equipment. The measures could represent the biggest change in US policy on exporting technology to China since the 1990s.

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After a week of closure, the Shanghai broad stock index rebounded 1.6%, Hong Kong nearly 3% and the offshore yuan weakened against the dollar.

Elsewhere, UK Treasury Secretary Kwasi Kwarteng traveled to Washington for the IMF meeting – after the fund criticized its controversial “mini-budget” – and the UK Treasury brought forward its spending review to October 31.

Sterling, UK government bonds and UK equity indices all weakened and the Bank of England moved to allay concerns about the emergency program to calm the gilt market’s turmoil, which expires later this week, including a doubling of the maximum size of its planned debt buyback on Monday. Continue reading

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Key developments that should give more direction to US markets later on Monday:

* Columbus Day holiday – US bond markets closed

* Federal Reserve Chair Lael Brainard and Chicago Fed Chair Charles Evans speak. European Central Bank Chief Economist Philip Lane speaks

* The annual meetings of the International Monetary Fund and the World Bank begin in Washington

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By Mike Dolan; Edited by Hugh Lawson [email protected]. Twitter: @reutersMikeD

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.

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