Dollar Weakens, Japan Stocks Trim Gains Before Fed: Markets Wrap

(Bloomberg) — The dollar fell, resuming this month’s downtrend, as traders debated the size of a potential Federal Reserve interest-rate cut later Wednesday. Japanese shares pared earlier gains as the yen strengthened. 

Bloomberg’s dollar index dropped for the fifth time in six days as market-implied odds put the chance of a half-point Fed rate cut Wednesday at just over 50%. The central bank will also release its long-term dot-plot forecasts with the decision, and Chair Jerome Powell will hold a press conference. 

Japanese stocks retraced earlier gains as the yen rebounded in Asia from its weakness on Tuesday, hurting the outlook for the nation’s exporters. Other Asian shares were mixed while US stock futures crept higher with investors unwilling to place big bets before the Fed. Treasuries were little changed. 

“There are more questions than answers on a 25- or 50-basis-point cut,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “It appears like a cautious day on the bench, by the sidelines as the Fed is awaited.”

Traders who are locked into record wagers tied to the Fed’s expected rate cut Wednesday are risking sharp losses if officials opt for a standard-sized reduction. In some markets, investors are primed for further easing from their local central banks in anticipation that the Fed will take more aggressive action to head off a slowdown.

Bloomberg’s dollar gauge slipped 0.1%, extending losses over the past week to almost 1%. The yen climbed about 0.7% after sinking more than 1% in New York. Bank of Japan Governor Kazuo Ueda and his colleagues are forecast to keep rates hold on Friday and discuss whether conditions are falling into place for another hike this year.

Chinese chip-related stocks jumped after the nation claimed a breakthrough in the development of homegrown chip-making equipment. Shanghai Zhangjiang High-Tech Park Development jumped by the daily 10% limit, while Changchun UP Optotech and Sai Micro Electronics also rallied.

Press Conference

What Powell says in his press conference about the state of the US economy may help build confidence for those worried about a recession in the near term, according to Kristina Hooper at Invesco, who expects the Fed to cut by 25 basis points.  

“It will be valuable to hear Powell’s thoughts on the expected path of rate cuts — in particular, what conditions could trigger a change of course, either a moderation or acceleration in easing,” she said.

Oil edged lower after a two-day gain as traders assessed indications of higher US stockpiles, rising tensions in the Middle East, and the likely course of the Federal Reserve’s rate path. Crude jumped Tuesday after thousands were hurt in what Hezbollah labeled an attack by Israel involving pagers in Lebanon.

Key events this week:

• Eurozone CPI, Wednesday
• Fed rate decision, Wednesday
• UK rate decision, Thursday
• US US Conf. Board leading index, initial jobless claims, US existing home sales, Thursday
• FedEx earnings, Thursday
• Japan rate decision, Friday
• Eurozone consumer confidence, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 12:59 p.m. Tokyo time
• Hang Seng futures were little changed
• Nikkei 225 futures (OSE) were little changed
• Japan’s Topix fell 0.3%
• Australia’s S&P/ASX 200 fell 0.2%
• The Shanghai Composite was little changed
• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.1% to $1.1126
• The Japanese yen rose 0.7% to 141.39 per dollar
• The offshore yuan rose 0.2% to 7.0980 per dollar

Cryptocurrencies

• Bitcoin rose 0.6% to $60,523.98
• Ether fell 0.4% to $2,335.15

Bonds

• The yield on 10-year Treasuries was little changed at 3.64%
• Japan’s 10-year yield was unchanged at 0.815%
• Australia’s 10-year yield advanced two basis points to 3.85%

Commodities

• West Texas Intermediate crude fell 0.4% to $70.90 a barrel
• Spot gold rose 0.2% to $2,575.88 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck.

©2024 Bloomberg L.P.