(Bloomberg) — The yen strengthened, erasing much of Tuesday’s losses amid a largely directionless Asian session in which traders debated the size of a potential Federal Reserve rate cut. Stocks were mixed.
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The Japanese currency rose as much as 0.8% after falling 1.3% in New York, sending Japanese stocks into a tailspin. Market implied odds put the chance of a half-point Fed rate cut on Wednesday at just over 50%. The central bank is also set to release new quarterly forecasts and Chairman Jerome Powell is scheduled to hold a news conference.
While most Asian stocks were lower, U.S. stock futures rose after the S&P 500 Index hit a new record high on Tuesday, and European futures were flat. The dollar and Treasuries were both little changed.
“There are more questions than answers about a 25- or 50-basis-point cut,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “It looks like a cautious day on the bank, on the sidelines, waiting for the Fed.”
Economists largely expect the Federal Open Market Committee to cut rates by a quarter point to a range of 5% to 5.25%, though some expect a half-point move. Investors see a better opportunity than a half-point adjustment.
New quarterly forecasts in the form of the so-called ‘dot plot’ released at the end of the central bank’s two-day meeting will provide more insight into the future development of borrowing costs and the economy.
Traders locked into record bets tied to the Fed’s expected rate cut risk steep losses if officials opt for a default cut. In some markets, investors are bracing for further easing by their local central banks in anticipation of the Fed taking more aggressive steps to stave off a slowdown.
Yen recovers
The yen recovered from Tuesday’s losses as traders awaited a decision from the Fed and also from the Bank of Japan later this week. BOJ Governor Kazuo Ueda and his colleagues are expected to leave their benchmark unchanged on Friday and discuss whether conditions are right for another hike this year.
Chinese stocks listed on China’s markets rose slightly after the holiday, shedding gains in Hong Kong stocks amid calls for a major economic stimulus.
Chinese chip-related stocks rose after the country claimed a breakthrough in developing its own chip equipment. Shanghai Zhangjiang High-Tech Park Development jumped by the daily limit of 10%, while Changchun UP Optotech and Sai Micro Electronics also rose.
“The market is expected to continue to fluctuate as investors are still waiting to see whether China will roll out more stimulus policies,” said Shen Meng, managing 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 fell slightly after a two-day rise as traders assessed signs of higher U.S. inventories, rising tensions in the Middle East and the likely course of the Federal Reserve’s interest rate. Crude rose Tuesday after thousands were injured in what Hezbollah called an Israeli beeper attack in Lebanon.
Important events this week:
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Eurozone CPI, Wednesday
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Fed rate decision, Wednesday
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UK interest rate decision, Thursday
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US US Conf. Board Leading Index, Initial Jobless Claims, US Existing Home Sales, Thursday
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FedEx Earnings, Thursday
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Japan Interest Rate Decision, Friday
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Eurozone consumer confidence, Friday
Some of the major moves in the markets:
Shares
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S&P 500 futures were little changed at 6:46 a.m. London time
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Japan’s Topix rose 0.1%
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Australia’s S&P/ASX 200 was little changed
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The Shanghai Composite rose 0.2%
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Euro Stoxx 50 futures fell 0.1%
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Nasdaq 100 futures were little changed
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Australia’s S&P/ASX 200 was little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro remained virtually unchanged at $1.1118
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The Japanese yen rose 0.7% to 141.46 per dollar
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The offshore yuan rose 0.2% to 7.0980 per dollar
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The Australian dollar remained virtually unchanged at $0.6754
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The British pound remained virtually unchanged at $1.3158
Cryptocurrency
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Bitcoin rose 0.2% to $60,234.69
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Ether fell 1.1% to $2,319.39
Bonds
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The yield on 10-year government bonds remained virtually unchanged at 3.64%
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The Japanese 10-year yield remained unchanged at 0.820%
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The Australian 10-year yield rose two basis points to 3.85%
Raw materials
This story was produced with the help of Bloomberg Automation.
–With assistance from Rob Verdonck.
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