Yen rises, stocks mixed as Fed decision nears: Market wraps

(Bloomberg) — The yen strengthened, recovering much of Tuesday's losses, amid a largely lopsided Asian session as traders debated the size of a possible Federal Reserve interest rate cut. Stocks were mixed.

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Japan's currency rose as much as 0.8% after sinking 1.3% in New York, helping to create a whips day for Japanese stocks. Market-implied odds currently favor a half-point Fed rate cut on Wednesday at just 50%. The central bank will release new quarterly estimates and Chair Jerome Powell will hold a news conference.

While most Asian stocks were lower, US equity futures ticked higher and European futures were flat after the S&P 500 index touched a new record on Tuesday. Both the dollar and Treasuries were little changed.

“The 25- or 50-basis-point cut raises more questions than answers,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “It's looking like a cautious day on the bench, on the sidelines, waiting for the Fed.”

Economists originally expected the Federal Open Market Committee to cut rates by a quarter point to a range of 5% to 5.25%, although a number expected a half-point move. Investors see the odds as better than a half-point adjustment.

New quarterly estimates in the form of so-called “dot plots” released at the end of the central bank's two-day meeting will provide more insight into borrowing costs and the path forward for the economy.

Traders who are stuck in record bets tied to the Fed's expected rate cuts are at risk of steep losses if officials opt for a rate-size cut. In some markets, investors are seeking further easing from their local central banks, primarily on the expectation that the Fed will take more aggressive steps to stave off a recession.

The rebound of the yen

The yen rebounded from Tuesday's losses as traders awaited decisions from the Fed and the Bank of Japan later this week. BOJ Governor Kazuo Ueda and his colleagues forecast the benchmark to hold on Friday and will discuss whether conditions are in place for another hike this year.

Chinese stocks listed on mainland markets edged higher after the holiday break, paring gains in Hong Kong equities amid calls for greater economic stimulus.

Chinese chip-related stocks after claiming a breakthrough in the development of domestic chip-making equipment. Shanghai Zhangjiang Hi-Tech Park Development jumped by over 10% daily, while Changchun UP Optotech and Sai Micro Electronics also rallied.

“Market volatility is expected to continue as investors are still waiting to see if China will introduce more stimulus policies,” said Shen Meng, director at Beijing-based investment bank Chanson & Co. Kong and the United States would be short-lived.”

Oil futures eased after two days of gains as traders weighed signs of higher U.S. inventories, rising tensions in the Middle East and the Federal Reserve's rate path. Crude jumped on Tuesday after thousands were injured in an Israeli attack involving pagers by Hezbollah in Lebanon.

This week's highlights:

• Eurozone CPI, Wednesday

• Fed rate decision, Wednesday

• UK rate decision, Thursday

• United States Conf. Board leading index, initial jobless claims, US existing home sales, Thursday

• FedEx earnings, Thursday

• Japan rate decision, Friday

• Eurozone consumer confidence, Friday

Some of the main rice in the market:

stock

• S&P 500 futures were little changed at 6:46 a.m. London time

• Japan's Topix rose 0.1%

• Australia's S&P/ASX 200 was little changed

• The Shanghai Composite rose 0.2%

• Euro STOXX 50 futures fell 0.1%

• Nasdaq 100 futures were little changed

• Australia's S&P/ASX 200 was little changed

currency

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1118

• The Japanese yen rose 0.7% to 141.46 per dollar

• The offshore yuan rose 0.2% to 7.0980 per dollar

• The Australian dollar was little changed at $0.6754

• The British pound was little changed at $1.3158

Cryptocurrency

• Bitcoin rose 0.2% to $60,234.69

• Ether fell 1.1% to $2,319.39

bond

• The yield on 10-year Treasuries was little changed at 3.64%

• Japan's 10-year yield was unchanged at 0.820%

• Australia's 10-year yield rose two basis points to 3.85%

merchandise

This story was produced with the help of Bloomberg Automation.

–With assistance from Rob Verdonk.

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