Stocks Face Pressure Ahead of Powell as Yen Rises: Markets Wrap

(Bloomberg) — The yen rose and Asian equity gauges fell ahead of comments from Jerome Powell later Friday.

The Japanese currency strengthened as investors parsed comments from Bank of Japan Governor Kazuo Ueda and Finance Minister Shunichi Suzuki about the currency market. Their remarks are in focus after hawkish rhetoric from Ueda helped trigger a massive selloff in global stock markets earlier this month.

Earlier, Japanese inflation data exceeded forecasts. Consumer prices in July rose 2.8% from a year earlier, the same as the prior month and higher than the 2.7% expected by economists. 

Equities in China, Australia and South Korea dropped, echoing Thursday’s selloff in US stocks where both the S&P 500 and tech-heavy Nasdaq 100 indexes retreated. 

The 10-year Treasury yield was steady in Asian trading after rising five basis points Thursday, when the policy-sensitive two-year yield climbed seven basis points, largely reversing the move from the prior session. An index of dollar strength slipped after a Thursday advance. Australian and New Zealand bond yields climbed.

Swaps traders pulled back marginally their expectations for US rate cuts this year, though still broadly priced in almost 100 basis points of cuts through December.

“We are now once again not debating if they will cut, but by how much they will cut and how many times they will cut before year end,” said Kenny Polcari at SlateStone Wealth. “The US economy is not circling the drain – so there is no need to suggest that it is.”

Investors waded through a raft of remarks from US policymakers, with Fed Bank of Kansas City President Jeffrey Schmid saying he wants to see more data before supporting cuts. His Boston counterpart Susan Collins said “a gradual, methodical pace” is likely to be appropriate. Her comments were echoed by Philadelphia Fed President Patrick Harker in a CNBC interview.

“The script is clear — the Fed is going to ease in September, but no one is portraying a desire to ease 50 basis points at this time,” said Andrew Brenner at NatAlliance Securities.

On the economic front, the latest figures were mixed. Jobless claims data showed the labor market is cooling only gradually — rather than rapidly slowing amid elevated rates. US manufacturing activity shrank at the fastest pace this year. And existing-home sales increased for the first time in five months.

Big Tech dropped in the US on Thursday, with Nvidia Corp. down 3.7% and Intel Corp. tumbling 6.1%, while banks and energy shares rose. Peloton Interactive Inc. surged 35% after the fitness company reported earnings that beat estimates.

Key events this week:

• US new home sales, Friday
• Jerome Powell speaks in Jackson Hole, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 10:34 a.m. Tokyo time
• Japan’s Topix was little changed
• Australia’s S&P/ASX 200 fell 0.4%
• Hong Kong’s Hang Seng fell 0.7%
• The Shanghai Composite was little changed
• Euro Stoxx 50 futures fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro was little changed at $1.1121
• The Japanese yen rose 0.3% to 145.81 per dollar
• The offshore yuan was unchanged at 7.1467 per dollar

Cryptocurrencies

• Bitcoin was little changed at $60,640.04
• Ether rose 0.4% to $2,635.6

Bonds

• The yield on 10-year Treasuries declined one basis point to 3.84%
• Australia’s 10-year yield advanced three basis points to 3.92%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold rose 0.2% to $2,489.13 an ounce

This story was produced with the assistance of Bloomberg Automation.

(Earlier version was corrected to show that markets expect about 100 basis points of cuts by the Fed this year)

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