(Bloomberg) — Japanese stocks moved lower regionally as traders look ahead to decisions from the Federal Reserve and Bank of Japan this week.
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The MSCI AC Asia Pacific Index fell, with the Nikkei 225 down as much as 2.1%, while benchmarks for Australia and Hong Kong rose. U.S. stock futures fell after the S&P 500 rose 0.1%, while the Nasdaq 100 fell 0.5%, as investors continue to pull away from the tech megacaps that have driven the bull market.
The dollar consolidated after a four-day decline as traders increased bets that the Fed would implement a half-point rate cut on Wednesday. Markets are forecasting a cut of somewhere between 25 and 50 basis points as US economic data begins to weaken, although inflation has remained stubborn. U.S. retail sales later Tuesday could offer clues about the Fed’s upcoming decision. Trading in government bonds changed little.
“The mood in Asia should be largely positive today, with the US interest rate market now strongly leaning towards a 50 basis point Fed rate cut,” said Tony Sycamore, analyst at IG Australia Pty Ltd. But the upcoming BOJ meeting could impact sentiment. towards Japanese equities and “should Ueda indicate that a rate hike in October is possible, the USD/JPY and the Nikkei are likely to come under renewed selling pressure.”
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In Hong Kong, shares of Chinese appliance giant Midea Group Co rose. in its stock market debut by as much as 9.5%, after robust demand for the largest public equity offering in three years revived hopes in the city’s languishing market. Others in the pipeline in Hong Kong include taxi company Didi Global Inc., which was forced to delist from the New York Stock Exchange by Chinese authorities.
Concerns about the weakness of the Chinese economy persist. Disappointing economic data over the weekend could increase pressure on authorities to step up fiscal and monetary stimulus if the country is to achieve this year’s growth target.
The country faces yet another challenge in proposed US tariffs on areas such as medical products. Shares of Malaysian glove makers including Top Glove Corp rose on Tuesday after expectations the US would finalize tariffs on Chinese goods this month.
Trade in China, Taiwan and South Korea was closed for holidays.
Meanwhile, the yen was steady, having risen above 140 per dollar on Monday for the first time since July 2023, while the Japanese currency continued its rally from its weakest point in almost 38 years in July.
The yen has been steadily rising on market expectations that the US-Japan interest rate differential will narrow further, leading to a decline in export-heavy Japanese stocks.
The Bank of Japan is expected to remain on hold on Friday after raising rates twice this year. All 53 economists surveyed by Bloomberg said Ueda’s board will leave the benchmark interest rate at 0.25% when the two-day meeting concludes on Friday.
Leveraged funds vary in their positions against the yen. Some short-term funds have held on to gains ahead of this week’s monetary policy decisions, while others are looking to increase their positions in the long yen by betting on a big Fed rate cut.
JPMorgan Chase & Co. is among companies raising their yen forecasts, citing expectations that U.S. and Japanese interest rates will normalize, as well as potential dollar weakness.
In commodities, gold remained near record levels, with traders betting it would benefit from a weaker U.S. dollar and lower Treasury yields following the Fed’s decision. Other precious metals rose, with silver rising to $31 an ounce for the seventh day in a row and on track for the longest stretch of daily gains since 2019.
Main events this week:
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Germany ZEW, Tuesday
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US corporate stocks, industrial production, retail sales, Tuesday
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Eurozone CPI, Wednesday
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Fed rate decision, Wednesday
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British interest rate decision, Thursday
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US US Conf. Board leading index, initial unemployment claims, existing home sales in the US, Thursday
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FedEx earnings, Thursday
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Japan interest rate decision, Friday
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Consumer confidence in the eurozone, Friday
Some of the major moves in the markets:
Stocks
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Futures on the S&P 500 were little changed at 1:35 p.m. Tokyo time
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Japan’s Topix fell 1.8%
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Australia’s S&P/ASX 200 rose 0.2%
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Hong Kong’s Hang Seng rose 1.4%
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Euro Stoxx 50 futures rose 0.4%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1123
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The Japanese yen was little changed at 140.73 per dollar
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The offshore yuan was little changed at 7.0978 per dollar
Cryptocurrencies
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Bitcoin rose 1% to $58,242.68
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Ether rose 0.6% to $2,288.2
Bonds
Raw materials
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West Texas Intermediate crude rose 0.6% to $70.53 a barrel
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Gold fell 0.2% to $2,577.21 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from Jason Scott, Masaki Kondo, and Jake Lloyd-Smith.
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