Fed Interest-Rate Cut Hopes Lift Yen, Boost Bonds: Markets Wrap

(Bloomberg) — Bonds rose as traders braced for the U.S. Federal Reserve to cut interest rates, expectations that also lifted the yen.

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Stock markets began a crucial week with quiet moves, with Europe’s benchmark STOXX 600 index down while US stock futures were flat as investors weighed the implications of a second assassination attempt on former President Donald Trump.

Expectations of a narrowing U.S.-Japan interest rate differential pushed the yen to its highest since July 2023, while the dollar retreated. Treasuries extended gains, with the yield on policy-sensitive two-year notes falling to its lowest since September 2022.

The start of the long-awaited U.S. monetary easing cycle is the focus of attention this week, part of a 36-hour series of monetary events that includes policy decisions in Brazil, South Africa, the United Kingdom and Japan. While traders are weighing whether the Federal Reserve will cut interest rates by 25 or 50 basis points, the Bank of Japan is expected to hold rates steady after spooking global financial markets with a rate hike at its last meeting.

“There is a huge amount of concern about the Fed’s easing cycle, and particularly about the pace of easing,” Katrina Ell, director of economic research at Moody’s Analytics, told Bloomberg TV. After the BOJ’s shockwave through global markets last month, “the BOJ’s communications will be critical to inform market participants precisely, and as clearly as possible, what the next steps are and the specific timing of those next steps.”

The revival of bets on a 50 basis point rate cut by the Federal Reserve has sent Treasury yields lower for two straight weeks. Swap traders had been expecting a rate cut of just under 100 basis points by the end of the year, according to data compiled by Bloomberg.

Trump is safe after the Secret Service shot a man carrying an assault rifle at his golf course in West Palm Beach, Florida, on Sunday, in what the FBI described as an apparent assassination attempt.

The suspect has been identified by federal officials as Ryan Routh, 58. He has been arrested eight times, apparently for minor offenses, according to CNN. In 2002, Routh was convicted of possessing a machine gun, NBC reports, citing court records.

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In Asia, a string of weak Chinese data has traders wondering whether authorities will roll out aggressive stimulus measures to support the economy. Industrial production, consumption and investment slowed more than expected in August, while the unemployment rate unexpectedly hit a six-month high.

“Recent Chinese economic data paints a bleak picture,” said Manish Bhargava, CEO of Straits Investment Management. “While aggressive stimulus from the People’s Bank of China may provide a short-term boost, previous measures have been gradual, raising doubts about the potential scope and effectiveness of future interventions.”

Markets in Japan, South Korea and China were closed for the holiday.

In commodities, gold hit a record high as markets awaited the U.S. Federal Reserve’s policy easing. Elsewhere, oil prices steadied after their first weekly gain in a month as a drop in Libyan exports was offset by economic troubles in China.

Main events this week:

• Speakers from the European Central Bank, including Vice President Luis de Guindos and Chief Economist Philip Lane, on Monday

• Manufacturing in the American Empire, Monday

• Singapore Trade Tuesday

• The Federal Reserve begins its two-day meeting on Tuesday.

• US business inventories, industrial production, retail sales on Tuesday

• Canada Consumer Price Index, Tuesday

• Indonesia Interest Rate Decision, Wednesday

• South Africa Retail Sales, CPI, Wednesday

• UK CPI, Wednesday

• Eurozone CPI, Wednesday

• US interest rate decision Wednesday

• Brazil interest rate decision, Wednesday

• Unemployment in Australia Thursday

• New Zealand GDP, Thursday

• Taiwan Interest Rate Decision, Thursday

• Norway interest rate decision, Thursday

• UK interest rate decision, Thursday

• South Africa Interest Rate Decision, Thursday

• China’s key lending rates, Friday

• Japan CPI and Interest Rate Decision Friday

• European Central Bank President Christine Lagarde speaks on Friday

• Bank of Canada Governor Tiff Macklem speaks Friday

Some key movements in the markets:

Stocks

• The Stoxx Europe 600 index was down 0.1% as of 8:17 a.m. London time.

• S&P 500 futures were little changed.

• Nasdaq 100 futures fell 0.2%.

• Dow Jones Industrial Average futures were little changed.

• MSCI Asia Pacific Index rose 0.5%

• The MSCI Emerging Markets Index rose 0.4%.

Currencies

• The Bloomberg Dollar Index fell 0.3%.

• The euro rose 0.3% to $1.1111.

• The Japanese yen rose 0.7% to 139.83 yen per dollar.

• The offshore yuan rose 0.1% to 7.0917 against the dollar.

• The pound rose 0.3% to $1.3159.

Cryptocurrencies

• Bitcoin fell 1.8% to $58,753.26

• Ether price fell 3% to $2,293.44

Bonds

• The yield on the 10-year US Treasury note fell one basis point to 3.64%.

• The yield on the 10-year German bond was little changed at 2.14%.

• The yield on the 10-year British bond fell one basis point to 3.76%.

Goods

• Brent crude rose 0.5 percent to $71.97 a barrel.

• Spot gold rose 0.2 percent to $2,582.17 an ounce.

This story was produced with the help of Bloomberg Automation.

–With the assistance of Matthew Burgess and Margarita Kirakossian.

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