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Bond markets remain calm as shares recover from China's selloff

Stocks rose on Thursday, as the Federal Reserve's dovish remarks and an auction of super-long-term debt held in Japan went smoothly. This helped to calm some recent market anxiety about government bonds.

China's bourses fell overnight, reportedly because Beijing was trying to cool down the raging rally on its equity markets.

STOXX600 in the region ticked up by 0.3% after trading settled. The angst over rising government borrowing costs, especially for long-term loans, has subsided.

The oil prices continued to be weak after a report saying that OPEC+ officials would increase output targets during their weekend meeting. Meanwhile, the dollar was on a downward trend ahead of Friday’s important jobs report.

In recent days, several key Federal Reserve officials have raised expectations of a Fed rate cut. The traders are pricing in an almost 100% chance of a Fed rate cut at the next central bank meeting on September 17.

Derek Halpenny is the head of research for MUFG’s global markets division.

He said that the Chinese equity markets dip had affected the Aussie and Kiwi dollar in the FX market, but other than that it was "consolidate" and "wait" for Friday's employment numbers.

The European bond buyers pushed the German 30-year yield down by just over one basis point, to 3.3%. France's bond yield was roughly the same, at 4.45%. It had hit its highest level since June 2009, 4.523%, on Tuesday.

FALLING STONE

After Bloomberg reported that financial regulators are preparing cooling measures, MSCI's Asia-Pacific broadest index, excluding Japan shares ended the night 0.2% lower.

Beijing bluechips dropped as much as 2,6%. The tech-heavy STAR 50, which soared almost 30% last month fell more than 6% on its worst day since the beginning of April.

Wall Street futures pointed to a smooth restart. The next payrolls will be on Friday. But traders can listen to the hearing for Stephen Miran's nomination to replace Adriana Kugler, who resigned from the Fed board.

Jim Reid, Global Head of Macro Research at Deutsche Bank, commented that it would be interesting to see senators question Miran about his views on Fed Independence, especially since Trump had fired another Fed official Lisa Cook and has repeatedly criticized Fed Chairman Jerome Powell.

Miran stated that he would "preserve this independence" in his testimony, which was posted on the Senate Banking Committee website Wednesday before Thursday's hearing.

The auction of 30-year Japanese Bonds in Tokyo went smoothly overnight, despite the attention that the independence issue has brought to the already high government debt levels.

The Nikkei ended the day 1.5% higher, after recovering from its biggest one-day drop since April.

Tony Sycamore said, "We had one or two weak days, but dip-buyers stepped in," said Tony Sycamore.

India's benchmark Sensex grew 1% when markets reopened after the government slashed taxes on several items to boost consumption and counteract U.S. Tariffs. The Federal Reserve's "Beige Book", released on Wednesday, painted a mixed image of the U.S. economy. This appeared to confirm monetary policymakers concerns. Analysts from ING described it as "bleak", and that it was "strewn with" tariff warnings about prices.

In European trading, the yield on 10-year Treasury bills fell to 4.2%. The 2-year yield, which is more sensitive to rates, was just over 3.6%.

The dollar was up by 0.1% against the Japanese yen, at 148.25. It remained within the range of trading it has been in since August began.

The dollar was slightly higher at $1.1650 against the euro. Brent crude fell 0.6% to $67.17 a barrel, and gold retreated 0.8% from its record high of $3578.5 per ounce reached on Wednesday. (Gregor Stuart Hunter, Singapore, contributed additional reporting; Andrew Heavens edited the article)

(source: Reuters)