Yen Rises, Stocks Are Mixed as Fed Decision Nears: Markets Wrap

(Bloomberg) — The yen strengthened, recouping much of Tuesday’s losses, amid a largely directionless Asian session as traders debated the size of a potential Federal Reserve interest-rate cut. Stocks were mixed.

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Japan’s currency climbed as much as 0.8% after sinking 1.3% in New York, helping to cause a whipsaw day for Japanese stocks. Market-implied odds are currently putting the chance of a half-point Fed rate cut Wednesday at just over 50%. The central bank will also release new quarterly projections, and Chair Jerome Powell will hold a press conference.

While most Asian stocks were lower, US equity futures ticked up after the S&P 500 Index touched a new record high Tuesday, and European futures were flat. The dollar and Treasuries were both little changed.

“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.”

Economists largely anticipate the Federal Open Market Committee will reduce rates by a quarter point to a range of 5% to 5.25%, though a number expect a half-point move. Investors see better-than-even odds of a half-point adjustment.

Fresh quarterly projections in the form of the so-called “dot plot” released at the end of the central bank’s two-day meeting will offer further insight into the path ahead for borrowing costs and the economy.

Traders who are locked into record wagers tied to the Fed’s expected rate cut are risking sharp losses if officials opt for a standard-sized reduction. In some markets, investors are primed for further easing from their local central banks in anticipation that the Fed will take more aggressive action to head off a slowdown.

Yen’s Rebound

The yen rebounded from Tuesday’s losses as traders awaited the Fed and also a Bank of Japan decision later this week. BOJ Governor Kazuo Ueda and his colleagues are forecast to keep their benchmark on hold Friday and discuss whether conditions are falling into place for another hike this year.

Chinese stocks listed on mainland markets edged higher after a holiday break, shrugging off the gains in Hong Kong equities amid calls for major economic stimulus.

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.

“The market is expected to continue fluctuating as investors are still waiting to see if China will roll out more stimulus policies,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “The impact from other markets such as Hong Kong and the US will be short-lived.”

Oil edged lower after a two-day gain as traders assessed indications of higher US stockpiles, rising tensions in the Middle East, and the likely course of the Federal Reserve’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 were little changed as of 6:46 a.m. London time
Japan’s Topix rose 0.1%
Australia’s S&P/ASX 200 was little changed
The Shanghai Composite rose 0.2%
Euro Stoxx 50 futures fell 0.1%
Nasdaq 100 futures were little changed
Australia’s S&P/ASX 200 was little changed

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.1118
The Japanese yen rose 0.7% to 141.46 per dollar
The offshore yuan rose 0.2% to 7.0980 per dollar
The Australian dollar was little changed at $0.6754
The British pound was little changed at $1.3158

Cryptocurrencies

Bitcoin rose 0.2% to $60,234.69
Ether fell 1.1% to $2,319.39

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

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck.