Markets on edge as US campaign enters final week

European shares were poised to fall for a seventh straight session while the dollar edged lower with investors largely holding back as the contentious US presidential campaign entered its final week. Earlier in the day, stronger-than-expected manufacturing data from China underpinned gains in Asian stocks and further stoked inflation expectations that drove a selloff in bonds in recent weeks.

Forecast-beating results from oil major Royal Dutch Shell initially provided a boost to Europe’s STOXX 600 index but those gains proved shortlived with weakness in banks dragging the index 0.1 percent lower.

Trading volumes were light across major European exchanges. The dollar was slightly weaker against a basket of currencies with the dollar index down 0.2 percent. In a busy week for central banks, the Bank of Japan and Reserve Bank of Australia held their policies steady as expected.

The BoJ also held off on expanding stimulus yesterday but once again pushed back the timing for hitting its inflation target. The dollar hovered around 104.80 yen. “We’re in limbo, unfortunately, ahead of the US election,” said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets. Hillary Clinton held a five-percentage-point lead over Republican rival Donald Trump, according to a Reuters/Ipsos opinion poll released on Monday, down only slightly since the FBI said last week it was reviewing new emails in its investigation of Clinton ahead of the Nov. 8 election.

Markets see only a small chance that the US Federal Reserve will raise rates when it concludes its meeting on Wednesday, but traders will be scouring its statement for clues on the timing of its next rate hike. Chances of a rate hike in December were at around 78 percent, according to the CME Group’s FedWatch Tool.

Meanwhile, Italy’s borrowing costs hit fresh two-year highs yesterday with investors wary of political risks and banking sector reforms continuing to run into hurdles. Other euro zone bond yields also rose between 3-4 basis points on the day, with Ireland’s 10-year bond yields hitting its highest level since June, rising 4 bps to 0.69 percent.

The ramp-up in yields has been a central theme across markets over the past month, spurring turbulence in debt markets and sending global investors out of bonds and into cash on fears that a multi-decade bond bull run was coming to an end.

Asian markets higher

Hong Kong led most major Asian markets higher yesterday, with data indicating forecast-beating growth in Chinese factory activity providing a boost but uncertainty over the US presidential race keeping investors on edge. The closely watched purchasing managers’ index hit its highest level in more than two years, Beijing said, indicating that the important manufacturing sector-and the world’s number two economy-is levelling out.

A separate private index also beat expectations to hit its highest mark since July 2014. The figures come weeks after official data showed economic growth stabilising and putting the government on track to achieve its annual target, while another reading showed a first increase in factory gate prices for four years. “The market has turned more positive and confident that China’s economy will stabilise in the fourth quarter,” Linus Yip, a Hong Kongbased strategist at First Shanghai Securities, told Bloomberg News.

“After a correction in Hong Kong and being at a relatively low level, the market needed some stimulus to gain power and the China figures helped trigger that.”

Hong Kong stocks closed up 0.9 percent, having retreated almost three percent in the previous five days. Shanghai ended up 0.7 percent and Tokyo reversed early losses to end 0.1 percent higher. Singapore put on 0.4 percent in late trade. But Sydney shed 0.5 percent and Seoul was slightly lower while Wellington and Taipei also finished lower.

In Asian trade the dollar bought 18.86 pesos compared with 18.96 pesos the day before. The dollar edged up later in the day against the yen after the Bank of Japan once again pushed back its inflation timeline. The central bank now expects prices to move “toward” two percent by March 2019 — four years later than its original goal, which was set by governor Haruhiko Kuroda in 2013.

Analysts said the move could mean the BoJ will hold off new easing until late next year to give prices time to pick up.

The pound rose against the dollar, having enjoyed a rare bump after Bank of England governor Mark Carney said he would extend his tenure by another year, putting an end to speculation over his future. — Agencies