The yen dropped to its lowest level this year after the Bank of Japan disappointed investors with only minor tweaks to its policy settings. Stocks in Asia look set for a mixed open after gains on Wall Street weren’t enough to offset a third monthly slide in the S&P 500.
Futures for equity benchmarks in Japan and Australia rose, while those for Hong Kong slipped. The S&P 500 rebounded in the final day of October but still notched its worst monthly run since the onset of the pandemic. Treasury 10-year yields rose, with traders taking the latest economic data in stride on the eve of a Federal Reserve decision. The dollar halted a two-day drop as the Japanese currency weakened.
The Bank of Japan loosened its grip on bond yields Tuesday, in a move that appeared to fall short of investors’ hopes for a clearer sign of progress toward policy tightening. The currency saw its biggest one-day drop since April, sending it to a new year-to-date low and raising the risk of government action.
The yen will possibly continue to weaken — and the BOJ will be forced to shift to a more “hawkish tone” in the coming weeks, according to Chris Senyek at Wolfe Research.
In economic news, US consumer confidence dropped to a five-month low in October while employment costs unexpectedly accelerated in the third quarter — underscoring a strong labor market that risks keeping inflation above the Fed’s target.
“The Fed is still wary of letting their guard down too early after missing their inflation target badly in the last few years,” said Bill Adams, chief economist for Comerica Bank. They are likely to signal on Wednesday “that they are prepared to raise interest rates again if inflation strays from its current downward trajectory.”
Aside from the highly anticipated Fed decision, bond dealers are expecting the US Treasury to unveil another round of increases this week to its note and bond auctions, though a sizable minority forecast the department will slow the pace of growth to avoid jolting yields higher.
“The main concern on parts of the bond market, particularly the traditional part, is really about the premium you’re getting — the term premium — to go out on the curve,” Russ Koesterich, global allocation fund portfolio manager at BlackRock, told Bloomberg Television. “And that is as much to do with the supply and changing demand dynamics as it does about inflation and the Fed. So you still want to be cautious on long-duration bonds.”
Billionaire investor Stan Druckenmiller said he’s bought “massive” bullish positions in two-year notes, as he’s become more worried about the economy.
Investors are also looking to guidance from the ongoing earnings season to assess the outlook for profits and how companies are able to withstand headwinds like higher rates. US stocks have slumped this month, as disappointing showings from technology giants including Google parent Alphabet Inc. and Facebook owner Meta Platforms Inc. have weighed on sentiment.
In other markets, oil plunged to the lowest in two months on Tuesday amid signs that the Israel-Hamas conflict will remain contained. Gold extended its drop below $2,000 an ounce but still rose 7.3% in October — its best month since March — as the war stimulated demand for haven assets.
Key events this week:
- China Caixin manufacturing PMI, Wednesday
- UK S&P Global / CIPS UK Manufacturing PMI, Wednesday
- US construction spending, ISM Manufacturing, job openings, light vehicle sales, Wednesday
- All Saints holiday in much of Europe, Wednesday
- Treasury quarterly refunding announcement, Wednesday
- Federal Reserve interest rate decision. Fed Chair Jerome Powell holds news conference, Wednesday
- Eurozone S&P Global Eurozone Manufacturing PMI, Thursday
- Bank of England interest rate decision. Governor Andrew Bailey holds news conference, Thursday
- US factory orders, initial jobless claims, productivity, Thursday
- Apple earnings, Thursday
- China Caixin services PMI, Friday
- Eurozone unemployment, Friday
- US unemployment, nonfarm payrolls, Friday
- Canada employment report, Friday
Stocks
- S&P 500 futures fell 0.2%; the index rose 0.7% on Tuesday
- Hang Seng futures fell 0.2% as of 7:23 a.m. Tokyo time
- Nikkei 225 futures rose 1.7%
- S&P/ASX 200 futures rose 0.5%
Currencies
- The Japanese yen was little changed at 151.62 per dollar
- The offshore yuan was little changed at 7.3417 per dollar
Cryptocurrencies
- Bitcoin fell 0.5% to $34,467.13
- Ether fell 0.6% to $1,803.55
Bonds
- The yield on 10-year Treasuries advanced four basis points to 4.93% on Tuesday
- Australia’s 10-year yield advanced six basis points to 4.99% early Wednesday
Commodities
- Spot gold was little changed
- West Texas Intermediate crude rose 0.7%
This story was produced with the assistance of Bloomberg Automation.
