Stocks stumble, dollar and gold rise as traders weigh US rates, election

By Ankur Banerjee

SINGAPORE (Reuters) - Gold prices jumped to record high and the dollar was on the rise again on Wednesday, keeping the pressure on the yen and the euro, while stocks in Asia stuttered as investors were reluctant to place major bets ahead of a hotly contested U.S. election.

The shifting expectations around how fast and deep the Federal Reserve will cut rates have also hurt risk sentiment, with traders now anticipating the U.S. central bank to be measured in its easing.

That has taken U.S. Treasury yields to a three-month peak and the dollar to multi-month highs against the euro, sterling and the yen, which is now back at 150 per dollar levels, prompting verbal warnings from Japanese officials.

MSCI's broadest index of Asia-Pacific shares outside Japan was last 0.06% higher. Tokyo's Nikkei was slightly lower in early trading.

"Volatility within a range bound trade is increasingly becoming the norm, as markets brace for pivotal weeks ahead, including the U.S. presidential election and a heavy corporate earnings agenda," said Anderson Alves, a trader with ActivTrades.

China and Hong Kong stocks made a steady open of trade on Wednesday, as the promise of government help for the economy supported the major indexes to settle in at higher levels.

Shifting momentum towards a likely Donald Trump presidency has been in focus for investors, with Trump policies including tariffs and restrictions on undocumented immigration expected to increase inflation. That in turn has supported the dollar on expectations U.S. rates may remain relatively high for a longer-than-anticipated period.

Trump's odds of beating Vice President Kamala Harris, the Democratic candidate, have recently edged higher on betting websites, though opinion polls show the race to the White House remains too tight to call.

With less than two weeks to go for the Nov. 5 election, investors are girding for volatility in the markets.

The yield on benchmark U.S. 10-year notes was 4.216% in Asian hours after touching a three-month high of 4.222% in the previous session.

"The Treasury sell-off has deepened this week as markets acknowledge that the Fed risks reigniting inflation if it eases into a strong economy," said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.

"Trump's improving election odds are also tempering market expectations for the Fed to continue easing into 2025 and the possibility of the Fed moving to the sidelines for six months next year cannot be ruled out."

Markets are currently pricing in 41 basis points (bps) of cuts for the year, with another 100 bps priced in for next year.

Traders anticipate the Fed to lower borrowing costs by 25 bps next month, having tempered their wagers of a larger cut in the wake of strong economic data. The Fed kicked off its easing cycle with a 50 bps cut in September.

The expectations of a measured pace of rate cuts from the Fed has led the dollar higher in recent weeks. The dollar index, which measures the U.S. currency against six rivals, touched 104.17, its highest since Aug. 2.

The yen slid to a three-month low of 151.74 per dollar in the Asian morning, while the euro hit $1.0792, its lowest level sine Aug. 2.

In commodities, gold prices hit a record high of $2,749.07 in early trade before giving up some of the gains to settle near $2,743.42 as the conflict in the Middle East along with uncertainty around the Fed outlook and U.S. election stokes demand for safe-haven assets. [GOL/]

Brent crude futures fell 0.4% to $75.73 a barrel, while West Texas Intermediate crude futures eased 0.38% to $71.47 per barrel after a sharp rise so far this week. [O/R]

(Reporting by Ankur Banerjee; Editing by Shri Navaratnam; To read Reuters Markets and Finance news, click on   https://www.reuters.com/finance/markets  For the state of play of Asian stock markets please click on:  )