Hopes for a Federal Reserve interest rate cut boost yen and stocks: Market roundup

(Bloomberg) — A global stock gauge advanced for a sixth day on Monday, boosted by hopes for a Federal Reserve policy shift, also sending the yen higher.

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Benchmarks in Taiwan and Australia rose slightly, as did European and U.S. stock futures. Meanwhile, Hong Kong stocks recouped losses after a string of poor Chinese data left traders wondering whether authorities would initiate aggressive stimulus to shore up the economy. In India, shares of Bajaj Housing Finance Ltd. more than doubled in value after the country’s biggest initial public offering of the year.

Expectations of a narrowing of the US-Japan interest rate differential pushed the Asian currency to its highest level since July 2023, while the dollar weakened. The euro appreciated. Markets in Japan, South Korea and mainland China were closed for a holiday and there was no trading in Treasury bonds in Asia.

The start of a long-awaited U.S. monetary easing cycle takes center stage this week, as part of a 36-hour monetary rollercoaster that includes policy decisions in Brazil, South Africa, the U.K. and Japan. While traders are considering whether the Federal Reserve will opt for a 25- or 50-basis-point cut, the Bank of Japan is widely expected to keep rates unchanged after roiling global financial markets with a hike at its latest meeting.

“There is a tremendous amount of anxiety around the Fed’s easing cycle and in particular the pace at which it will do so,” Katrina Ell, director of economic research at Moody’s Analytics, told Bloomberg Television. After the BOJ-induced global market shakeup last month, “the BOJ’s communication will be critical to ensure that market participants know exactly, as clearly as possible, what the next move will be and the concrete timing of the next moves.”

Reviving bets on a 50-basis-point rate cut by the Federal Reserve sent Treasury yields lower for a second straight week, with two-year notes closing at a two-year low on Friday. Swap traders were pricing in just under 100 basis points of rate cuts by year-end, according to data compiled by Bloomberg.

Given the holiday, investors will likely be cautious ahead of regional trade data and Bank Indonesia’s policy decision just hours before the Federal Reserve’s. Global funds have been buying Southeast Asian assets as the prospect of interest rate cuts and attractive valuations promise huge returns.

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That optimism contrasts with China, where factory output, consumption and investment slowed more than expected in August, while the unemployment rate unexpectedly hit a six-month high. The People’s Bank of China said late Friday it would step up its fight against deflation and prepare more policies to revive the economy, after credit data showed private confidence remained weak.

“Recent economic data from China paints a grim picture,” said Manish Bhargava, chief executive of Straits Investment Management. “While aggressive stimulus from the People’s Bank of China could offer a short-term boost, previous measures have been gradual, raising questions about the potential scale and effectiveness of future interventions.”

In commodities, gold rose to a record high as markets awaited a policy easing from the Federal Reserve. Elsewhere, oil steadied after its first weekly gain in a month as a drop in Libyan exports was offset by China’s economic woes.

Key events of this week:

• ECB speakers, including Vice President Luis de Guindos and Chief Economist Philip Lane, on Monday

• The US manufacturing empire, Monday

• Singapore Trading, Tuesday

• The Federal Reserve begins a two-day meeting on Tuesday

• US business inventories, industrial production and retail sales, Tuesday

• Canadian CPI, Tuesday

• Indonesian interest rate decision on Wednesday

• South Africa Retail Sales, CPI, Wednesday

• UK CPI, Wednesday

• Eurozone CPI, Wednesday

• US rate decision, Wednesday

• Brazil interest rate decision, Wednesday

• Australian unemployment, Thursday

• New Zealand GDP, Thursday

• Taiwan rate decision, Thursday

• Norway interest rate decision, Thursday

• UK interest rate decision, Thursday

• South Africa rate decision on Thursday

• China’s prime lending rates on Friday

• Japan CPI, interest rate decision, Friday

• ECB President Christine Lagarde speaks on Friday

• Bank of Canada Governor Tiff Macklem speaks on Friday

Some of the main movements in the markets:

Stocks

• S&P 500 futures were little changed at 2:45 p.m. Tokyo time.

• Nikkei 225 (OSE) futures fell 0.3%

• Australia’s S&P/ASX 200 index rose 0.3%

• Hong Kong’s Hang Seng has hardly changed

• Euro Stoxx 50 futures up 0.1%

Coins

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.2% to $1.1097.

• The Japanese yen rose 0.5 percent to 140.15 per dollar.

• The offshore yuan was unchanged at 7.1017 per dollar.

• The Australian dollar rose 0.3% to $0.6726

• Sterling rose 0.2% to $1.3155

Cryptocurrencies

• Bitcoin fell 2.2% to $58,496.17

• Ether fell 3.2% to $2,288.11

Captivity

Raw materials

• West Texas Intermediate crude rose 0.3% to $68.86 a barrel

• Spot gold rose 0.4% to $2,589.17 an ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from Matthew Burgess.

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