Fed Interest Rate Cut Hopes Lift Yen, Buoy Shares: Markets Wrap

(Bloomberg) — A global stocks gauge advanced for a sixth day on Monday, lifted by hopes for a Federal Reserve policy pivot, which also triggered a rise in the yen.

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Benchmarks in Taiwan and Australia edged higher, as did European and US equity futures. Meanwhile, Hong Kong stocks recovered from losses after a string of poor Chinese data left traders wondering if authorities would initiate forceful stimulus to buttress the economy. In India, the shares of Bajaj Housing Finance Ltd more than doubled after the nation’s biggest initial public offering of the year.

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

The start of a long-anticipated US easing cycle takes center stage this week, part of a 36-hour monetary roller coaster that includes policy decisions in Brazil, South Africa the UK and Japan. While traders are mulling whether the Fed will go for a 25 or 50 basis-point cut, the Bank of Japan is expected to keep rates on hold after roiling global financial markets by an increase at its last meeting.

“There’s a huge amount of anxiety riding on the Fed’s easing cycle and particularly the pace at which their going to ease,” Katrina Ell, director of economic research Moody’s Analytics, told Bloomberg Television. After the BOJ-induced global market shakeup last month, “the communication from the BOJ will be critical to let market participants know exactly, as clear as they can be, what the next move and the particular timings of the next moves will be.”

A revival of wagers for a 50 basis point rate cut by the Fed, prompted Treasury yields to fall for a second straight week, with two-year notes closing at a two-year low on Friday. Swap traders were pricing just under 100 basis points of rate cuts by year-end, according to data compiled by Bloomberg.

Given the holidays, investors will likely be cautious ahead of regional trade data and Bank Indonesia’s policy decision just hours before the Fed. Global funds have been snapping up Southeast Asian assets as the prospect of interest-rate cuts and attractive valuations holds out the promise of supersized returns.

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That optimism stands in contrast to China, where factory output, consumption and investment all slowed more than forecast for August, while the jobless rate unexpectedly hit a six-month high. The People’s Bank of China signaled 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.

“The recent Chinese economic data paints a grim picture,” said Manish Bhargava, chief executive officer at Straits Investment Management. “While an aggressive stimulus from the PBOC could offer a short-term lift, past measures have been incremental, raising doubts about the potential scale and effectiveness of future interventions.”

In commodities, gold rose to a record high as markets waited for the Fed easing. 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 this week:

• ECB speakers including Vice President Luis de Guindos and chief economist Philip Lane, Monday

• US empire manufacturing, Monday

• Singapore trade, Tuesday

• Federal Reserve begins two-day meeting, Tuesday

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

• Canada CPI, Tuesday

• Indonesia rate decision, Wednesday

• South Africa retail sales, CPI, Wednesday

• UK CPI, Wednesday

• Eurozone CPI, Wednesday

• US rate decision, Wednesday

• Brazil rate decision, Wednesday

• Australia unemployment, Thursday

• New Zealand GDP, Thursday

• Taiwan rate decision, Thursday

• Norway rate decision, Thursday

• UK rate decision, Thursday

• South Africa rate decision, Thursday

• China loan prime rates, Friday

• Japan CPI, interest rate decision, Friday

• ECB President Christine Lagarde speaks, Friday

• Bank of Canada Governor Tiff Macklem speaks, Friday

Some of the main moves in markets:

Stocks

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

• Nikkei 225 futures (OSE) fell 0.3%

• Australia’s S&P/ASX 200 rose 0.3%

• Hong Kong’s Hang Seng was little changed

• Euro Stoxx 50 futures rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.2% to $1.1097

• The Japanese yen rose 0.5% to 140.15 per dollar

• The offshore yuan was little changed at 7.1017 per dollar

• The Australian dollar rose 0.3% to $0.6726

• The British pound rose 0.2% to $1.3155

Cryptocurrencies

• Bitcoin fell 2.2% to $58,496.17

• Ether fell 3.2% to $2,288.11

Bonds

Commodities

• 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 the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess.

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