Buck Weakens, Jap Shares Achieve Ahead of 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 rose.

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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.

Japan’s Nikkei 225 Stock Average climbed as much as 1.3% in early trade as a slide in the yen on Tuesday boosted the outlook for the nation’s exporters. Equities trimmed those gains as the yen rose in Asia. Other Asian shares were mixed with investors unwilling to place big bets before the Fed.

“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.”

The crucial thing for traders is investors’reaction to the Fed decision. Will a 25 basis-point cut leave them worried the Fed is behind the curve, or will a 50 basis-point move spook markets into thinking policymakers must know the economy is in worse shape than most currently believe?

“With the Fed meeting holding the potential to significantly boost volatility, there are clearly enough reasons for would-be buyers to sit on their hands,” said Chris Weston, head of research at Pepperstone Group in Melbourne. “While shorts may look to cover, the prospect of a day where we see a grind lower through trade on lighter volumes seems highly plausible.”

Bloomberg’s dollar gauge slipped 0.1%, extending losses over the past week to almost 1%. The yen climbed about 0.7% Wednesday 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.

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Press Conference

What Powell says in his press conference about the state of the US economy could 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 steadied in Asia after a two-day gain as traders assessed rising tensions in the Middle East, indications of higher US stockpiles, and the likely course of the Fed’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 rose 0.1% as of 11:39 a.m. Tokyo time

• Hang Seng futures were little changed

• Nikkei 225 futures (OSE) rose 0.5%

• Japan’s Topix rose 0.4%

• Australia’s S&P/ASX 200 was little changed

• The Shanghai Composite was little changed

• Euro Stoxx 50 futures were unchanged

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.1% to $1.1128

• The Japanese yen rose 0.7% to 141.42 per dollar

• The offshore yuan rose 0.2% to 7.0994 per dollar

Cryptocurrencies

• Bitcoin rose 0.2% to $60,246.59

• Ether fell 0.6% to $2,331.37

Bonds

• The yield on 10-year Treasuries was little changed at 3.64%

• Japan’s 10-year yield was unchanged at 0.820%

• Australia’s 10-year yield advanced two basis points to 3.85%

Commodities

• West Texas Intermediate crude fell 0.5% to $70.85 a barrel

• Spot gold rose 0.2% to $2,574.01 an ounce

This story was produced with the assistance of Bloomberg Automation.

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