Rampant dollar pauses to catch his breath as bears stalk stocks

HONG KONG, Sept. 27 (Reuters) – Asian markets tried to stabilize on Tuesday after a few wild days in which most assets, except the dollar, fell, with the dollar easing a bit and stocks flat.

Sterling, which collapsed to a record low of $1.0327 on Monday, rebounded to $1.0772. S&P 500 futures were up 0.7% and European futures were up 0.6%.

MSCI’s broadest index of Asian stocks outside of Japan (.MIAPJ0000PUS) fell 0.3%, the smallest decline in five consecutive loss sessions, even as it hit another two-year low. The Japanese Nikkei rose 0.5%.

Analysts were skeptical about the outlook, however, as markets – already nervous at the prospect of US interest rates continuing to rise for longer – were unnerved by the turmoil in UK assets in response to government spending plans.

Britain is planning tax cuts on top of massive energy subsidies, and a lack of confidence in its strategy and funding has re-hammered the British pound and the pound on Friday and Monday.

Five-year government bond yields have risen by as much as 100 basis points in two trading days.

“(It) is definitely something that’s unfolding… probably we’re just at some early stage of seeing how the market processes that kind of information,” said Yuting Shao, macro strategist at State Street Global Markets.

“Of course, the tax cut plan itself was actually designed to boost growth, reduce household expenses, but it does raise the question of what the implications are for monetary policy.”

Following the pound’s fall, the Bank of England said it would not hesitate to change interest rates and kept a “very close” eye on markets. read more

Huw Pill, chief economist at the Bank of England, will speak to a panel at 1100 GMT and will likely be pressed for more details.

BEAR REGION

Spillover from Britain kept other assets on edge.

Bond sales in Japan pushed yields up to the Bank of Japan ceiling and led to more unplanned central bank purchases.

Wall Street plunged deeper into a bear market on Monday, 10-year Treasury yields rose more than 20 bps to a 12-year high of 3.933% and the dollar was bid.

“There could easily be another leg down as classic signs of market capitulation, such as the VIX index hitting the key 40 level, have failed to materialize – although we are getting closer,” said Invesco chief strategist Kristina Hooper.

Known as Wall Street’s “fear meter,” the VIX (.VIX) hit a three-month high of 32.88 on Monday.

Investors are looking forward to a slew of speeches from central bank officials this week, with the Fed’s Charles Evans speaking at 0730 GMT on Tuesday.

US Conference Board consumer confidence is expected to rise slightly later in the day to 104.5 from 103.2.

The dollar index fell 0.2% to 113.71 on Tuesday, after previously reaching 114.58, the strongest since May 2002.

The European single currency rose 0.3% on the day to $0.9636, after hitting a 20-year low a day ago.

Oil and gold caused losses. Gold, which hit a 2-1/2 year low Monday, rose 0.6% to $1,631 an ounce. Oil rose slightly from its lowest level since January.

US crude rose 0.8% to $77.35 a barrel. Brent oil rose to $84.8 a barrel.

Bitcoin broke above $20,000 for the first time in about a week on Tuesday, as cryptocurrencies bounced back, along with other risk-sensitive assets. read more

Reporting by Xie Yu; Editing by Edmund Klamann and Muralikumar Anantharaman

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