Global Markets: Stocks stymied pending Fed and yen decisions

USU Ventures AG

01/11/2023 12:20

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              Yen strengthens but still close to 1-year low vs
dollar
      
    

        * 
      Spotlight now on Fed, Powell speech
    

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      Morning Bid Europe - Yen hangs under intervention cloud
    

  
    By Lawrence White
       LONDON, Nov 1 (Reuters) - Stocks stagnated while bond
yields edged higher on Wednesday as markets awaited a key policy
decision from the U.S. Federal Reserve, as well as any signs of
Japanese authorities intervening to prop up the battered yen. 
    Europe's benchmark STOXX index was up just 0.04%, as was
MSCI's broadest index of Asia-Pacific shares outside Japan
 .MIAPJ0000PUS , while U.S. futures slipped 0.4%.
    Japan's Nikkei  .N225  was 2% higher as investors remained
on red alert for yen-buying intervention from authorities to try
to scrape the currency off the floor after central bank policy
tweaks failed to reverse its recent losses.
    The spotlight on Wednesday, meanwhile, will firmly be on the
Federal Reserve's policy decision.
    With the central bank widely expected to hold rates steady,
investors will scrutinise Fed Chair Jerome Powell's speech to
gauge where interest rates are headed and how long they will
stay higher.
    "The Federal Reserve is in a desirable position as it
prepares to announce policy this evening thanks to the combined
effect of rate hikes and higher Treasury yields keeping pressure
on prices," said Francesco Pesole, strategist at ING.
    Powell is likely to tread carefully in trying to mitigate
any inference that further rate hikes are completely off the
table, despite the tightening in financial conditions, Pesole
said.
    Markets are pricing in a 29% chance of a 25 basis point (bp)
hike in December and a 35% chance of a 25 bps hike in January,
the CME FedWatch tool showed.
    S&P e-mini futures fell 0.43%, while NASDAQ futures were
down 0.47% and DOW futures sank 0.33%.  NQcv1   EScv1   1YMc1  
    Treasury yields remained elevated, with the yield on 10-year
Treasury notes  US10YT=RR  up 3 bps to 4.9011%. The yield on the
30-year Treasury bond  US30YT=RR  was up 4 bps to 5.0634%.  US/ 
    The two-year  US2YT=RR  U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down slightly
at 5.0665%. 
    Claudio Irigoyen, global head of economics at BofA Global
Research, said the most important question for the next three to
five years in the discussion about U.S. fiscal policy was 
whether interest rates would go back to pre-pandemic levels. 
    "Or if this is a new regime of higher real interest rates,"
Irigoyen said. "And I think that I am more on the camp of the
second option."
    
    YEN VIGIL
    The yen recovered somewhat on Wednesday after a hammering
the day before when the Bank of Japan (BOJ) tweaked its bond
yield control policy, loosening its grip on long-term rates and
shunting the currency to a one-year low against the dollar.
    That prompted a fresh and sterner warning from Japan's top
currency diplomat Masato Kanda on Wednesday that authorities
stood ready to respond to recent "one-sided, sharp" moves in the
currency, helping it recover 0.35% against the dollar to 151.2.
 JPY=EBS     
    "The market has seen the tweak to a flexible regime as clear
dovish development," said Chris Weston, head of research at
Pepperstone. 
    "Once again market players have been left frustrated by the
lack of urgency shown by the BOJ, and either closed yen longs or
flipped into outright yen shorts."
    The yen remained close, however, to one-year lows of 151.74
it hit on Tuesday and the three-decade low of 151.94 touched
last year, which triggered an intervention by Tokyo at the time.
    Against a basket of currencies, the dollar  =USD  was up
0.21% at 106.9. Sterling  GBP=D3  was last at $1.2125, down
0.23% on the day. 
    Data on Wednesday showed Asia's manufacturers faced
worsening pressure in October with factory activity in China
slipping back into decline, clouding recovery prospects for the
region's major exporters already squeezed by weaker global
demand and higher prices.
    Oil prices rose ahead of the Fed decision, with the market
keeping a close eye on the latest developments in the
Israel-Hamas conflict, as geopolitical risks offset record
production levels in the U.S.
    U.S. crude  CLc1  rose 2% to $82.62 per barrel and Brent
 LCOc1  was at $86.59, up 1.85% on the day.  O/R 

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World FX rates YTD    http://tmsnrt.rs/2egbfVh
Global asset performance    http://tmsnrt.rs/2yaDPgn
Asian stock markets    https://tmsnrt.rs/2zpUAr4
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 (Reporting by Lawrence White in London and Ankur Banerjee in
Singapore, additional reporting by Tom Westbrook; Editing by
Alison Williams and Mark Potter)
 ((lawrence.white@thomsonreuters.com; +44 20 7513 5083; X-
@ReutersLawrence))
 
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