Asian currencies in focus as Japan warns about the yen: packing markets

(Bloomberg) — A gauge of Asian currencies fell for a third session, kicking off a week that includes inflation measures that could help guide bets on the outlook for global interest rates. The yen held steady after Japan’s top currency official tightened intervention rhetoric.

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An index of the region’s stocks also fell, with shares in South Korea, Hong Kong and mainland China all falling, while those for Japan fluctuated. U.S. stock futures were also softer after the S&P 500 fell on Friday due to a large option expiration. Yields on 10-year government bonds were stable in Asian trading.

These moves come as markets are at a crucial juncture for their positioning in the second half of 2024, with the outlook for central bank policy rates from New Zealand to Japan and the US unclear. Inflation rates in Australia and Tokyo, as well as the Federal Reserve’s measure of consumer costs, could help, after data showed US services activity hit the fastest pace in more than two years.

Bloomberg’s Asian dollar index fell, while the Japanese yen was below 160 per dollar. Masato Kanda said officials are ready to intervene to support the currency 24 hours a day if necessary. Traders are wary of an escalation in official rhetoric following the yen’s 1.6% decline this month, while retail investors appear to be reloading their bets on a recovery.

“We suspect the next round of intervention is likely to occur after the yen triggers buy orders above the late April high of 160.20ish,” said Tony Sycamore, market analyst at IG Australia in Sydney.

China’s currency fix was little changed at 7.1201 per dollar on Monday after the country’s assets sold off again last week as policymakers showed no urgency to roll out more stimulus.

The yuan’s weakness is symptomatic of deteriorating sentiment toward the world’s second-largest economy, which is also seeing a rally in the bond market as investors look for safe assets. Benchmark yields have fallen to record lows on mixed economic data and expectations of further stimulus.

Separately, China and the European Union have agreed to begin talks over the bloc’s plans to impose tariffs on electric vehicles imported from the Asian country.

This week, as traders analyze inflation data, they will also keep an eye on rising political risks. The first debates on the British Prime Minister and the American President are scheduled and the first round of voting for the French parliamentary elections will take place next weekend.

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“If Trump continues to lead, we expect the election to become a major driver of markets sometime in the coming months,” said Sarah Bianchi, analyst at Evercore ISI.

Triple witchcraft

The S&P 500 fell Friday after an estimated $5.5 trillion in options expired in the quarterly event ominously known as “triple witching.” Nvidia Corp. played an additional role, with the value of contracts tied to the chipmaker being the second largest of all underlying assets, trailing only the S&P 500.

Traders and strategists are beginning to wonder how long this year’s rally can last, as bond and currency markets roil on shifting bets on central bank rate cuts and uncertainty about Europe’s elections. A gauge of global equities rose 2.3% this quarter, marking a third straight quarterly gain, while US stocks hit new highs this month amid the AI ​​frenzy.

A correction is already starting to emerge at the stock level as market breadth is extremely weak and momentum for a few stocks continues almost unabated, according to Morgan Stanley. However, that could remain into the second half until there is a change in the macro outlook, such as inflation signaling the need for a rate hike or growth slowing significantly, Michael Wilson, chief U.S. equity strategist, wrote in a note to clients on Sunday .

In commodities, oil extended the previous session’s decline to $80 a barrel, amid a stronger dollar and a technical indicator that the recent rally has gone too far. Gold held steady amid a reassessment of the Fed’s rate cut outlook.

Main events this week:

• BOJ releases summary of recommendations from June policy meeting on Monday

• Singapore CPI, Monday

• Unemployment rate in Taiwan, industrial production, Monday

• Unemployment Argentina, GDP, Monday

• Bank of Canada Governor Tiff Macklem speaks Monday

• Fed Chair Mary Daly of San Francisco will speak on Monday

• Fed Governor Christopher Waller speaks Monday

• Consumer confidence in Australia, Tuesday

• Malaysia CPI, Tuesday

• CPI Canada, Tuesday

• GDP of Spain, Tuesday

• U.S. Conference Board Consumer Confidence Report, Tuesday

• Fed Governor Lisa Cook and Fed Governor Michelle Bowman speak Tuesday

• Australia CPI, Wednesday

• British Prime Minister Rishi Sunak and Labor leader Keir Starmer will debate on Wednesday

• The Bank of Finland’s third International Monetary Policy Conference starts on Wednesday

• RBA Deputy Governor Andrew Hauser speaks on Thursday

• Retail sales in Japan, Thursday

• Philippines interest rate decision on Thursday

• Chinese industrial gains, Thursday

• Economic confidence in the eurozone, consumer confidence, Thursday

• BOE will publish a financial stability report on Thursday

• Tariff decision Sweden, Thursday

• Tariff decision Turkey, Thursday

• US durable goods, initial unemployment claims, GDP, wholesale stocks, Thursday

• Unemployment, trade, tariff decision in Mexico, Thursday

• Japan Tokyo CPI, unemployment, industrial production, Friday

• UK GDP, Friday

• France CPI, Friday

• Italy CPI, Friday

• Spain CPI, Friday

• GDP of the Czech Republic, Friday

• US PCE inflation, spending and income, University of Michigan consumer confidence, Friday

• Richmond Fed President Thomas Barkin will speak Friday

• Unemployment Brazil, Friday

• Chile industrial production, unemployment, Friday

• Unemployment Colombia, rate decision, Friday

Some of the major moves in the markets:

Shares

• S&P 500 futures fell 0.2% as of 10:40 a.m. Tokyo time

• Nikkei 225 futures (OSE) were little changed

• Japan’s Topix rose 0.2%

• Australia’s S&P/ASX 200 fell 0.6%

• Hong Kong’s Hang Seng fell 0.6%

• The Shanghai Composite fell 0.4%

• Euro Stoxx 50 futures fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0689

• The Japanese yen was little changed at 159.68 per dollar

• The offshore yuan was little changed at 7.2887 per dollar

• The Australian dollar fell 0.1% to $0.6633

Cryptocurrencies

• Bitcoin fell 0.8% to $63,205.34

• Ether fell 0.4% to $3,420.35

Bonds

• The yield on ten-year government bonds fell by one basis point to 4.25%

• The Japanese ten-year yield rose by two basis points to 0.990%

• The Australian ten-year yield fell by one basis point to 4.20%

Raw materials

• West Texas Intermediate crude fell 0.3% to $80.46 a barrel

• Spot gold rose 0.1% to $2,324.68 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from Aya Wagatsuma.

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