Fed Price-Reduce Wagers Weaken Greenback and Spice up Bonds: Markets Wrap

(Bloomberg) — The dollar weakened and bonds rose as traders prepared for the Federal Reserve to reduce interest rates, with opinion divided on how big this week’s cut will be.

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Bloomberg’s dollar index slipped to the lowest in more than eight months, while expectations of a narrowing interest rate differential between the US and Japan propelled the yen to its highest level since July 2023. Treasuries extended their gains, with the yield on the policy-sensitive two-year note falling to the lowest since September 2022.

Stocks kicked off a crucial few days with muted moves, as Europe’s benchmark Stoxx 600 index and US equity futures kept to narrow ranges. There was little reaction in markets to news of a second attempt to assassinate former President Donald Trump.

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. It’s come down to a virtual coin toss for traders on whether the Fed will go for a 25 or 50 basis-point cut.

“There has rarely been so much uncertainty over central bank intentions,” analysts at Edmond de Rothschild wrote in a note. “They are caught between signs of economic weakness and inflation which is stubbornly resisting a return to the 2% target.”

The Bank of Japan, meanwhile, is expected to keep rates on hold after roiling global financial markets with an increase at its last meeting.

“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,” Katrina Ell, director of economic research Moody’s Analytics, told Bloomberg Television.

Trump is safe after his Secret Service detail opened fire at a man who was wielding an assault rifle at his West Palm Beach, Florida, golf course Sunday, in what the Federal Bureau of Investigation called an apparent assassination attempt.

A suspect in custody was identified by federal officials as Ryan Routh, 58. He has eight arrests on his record, apparently for minor offenses, CNN reported. In 2002, Routh was convicted of possessing a machine gun, NBC reported, citing court records.

In Asia, a string of poor Chinese data left traders wondering if authorities would initiate forceful stimulus to buttress the economy. Factory output, consumption and investment all slowed more than forecast for August, while the jobless rate unexpectedly hit a six-month high.

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“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.”

Markets in Japan, South Korea and mainland China were closed for a holiday.

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

• The Stoxx Europe 600 was little changed as of 9:15 a.m. London time

• S&P 500 futures were little changed

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index rose 0.5%

• The MSCI Emerging Markets Index rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%

• The euro rose 0.4% to $1.1119

• The Japanese yen rose 0.8% to 139.75 per dollar

• The offshore yuan rose 0.1% to 7.0925 per dollar

• The British pound rose 0.4% to $1.3177

Cryptocurrencies

• Bitcoin fell 1.5% to $58,929.63

• Ether fell 2.1% to $2,314.06

Bonds

• The yield on 10-year Treasuries declined one basis point to 3.64%

• Germany’s 10-year yield was little changed at 2.15%

• Britain’s 10-year yield was little changed at 3.76%

Commodities

• Brent crude rose 0.8% to $72.19 a barrel

• Spot gold rose 0.3% to $2,584.52 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess, Margaryta Kirakosian, Sujata Rao and Catherine Bosley.

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