Fed rate cut hopes to lift yen, boost bonds: markets align

(Bloomberg) — Bonds rose as traders prepared for a rate cut by the Federal Reserve, expectations that also fueled a rise in the yen.

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Stock markets started a crucial week with muted moves as Europe’s benchmark Stoxx 600 index fell lower while US stock futures held steady. Investors were also assessing the implications of a second attempt to assassinate former President Donald Trump.

Expectations of a narrowing interest rate spread between the US and Japan pushed the yen to its highest level since July 2023, while the dollar fell. Government bonds extended their gains, with the yield on the policy-sensitive two-year bond falling to the lowest level since September 2022.

The start of a long-awaited US easing cycle takes center stage this week, part of a 36-hour monetary rollercoaster with policy decisions in Brazil, South Africa, Britain and Japan. While traders wonder whether the Fed will opt for a 25 or 50 basis point cut, the Bank of Japan is expected to leave rates unchanged after rattling global financial markets with a hike at its last meeting.

“There’s a tremendous amount of fear associated with the Fed’s easing cycle and especially around the pace at which they’re going to ease,” Katrina Ell, director of economic research at Moody’s Analytics, told Bloomberg Television. Following the BOJ-induced global market shake-up last month, “the BOJ’s communications will be critical to let market participants know precisely and as clearly as possible what the next step will be and the specific timing of the next steps. ”

A revival of bets on a 50 basis point rate cut by the Fed has dragged down Treasury yields for two straight weeks. According to data from Bloomberg, swap traders had priced in a rate cut of just under 100 basis points by the end of the year.

Trump is safe after his Secret Service associates opened fire on a man who wielded an assault rifle at his golf course in West Palm Beach, Florida, on Sunday in what the Federal Bureau of Investigation called an apparent assassination attempt.

A suspect in custody was identified by federal officials as Ryan Routh, 58. He has eight arrests to his name, apparently for minor crimes, CNN reported. In 2002, Routh was convicted of possessing a machine gun, NBC reported, citing court documents.

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In Asia, a series of poor Chinese data left traders wondering whether authorities would initiate strong stimulus measures to support the economy. Factory output, consumption and investment all slowed more than forecast for August, while unemployment unexpectedly hit a six-month high.

“Recent Chinese economic data paints a grim picture,” said Manish Bhargava, CEO of Straits Investment Management. “While aggressive stimulus from the PBOC could provide a short-term boost, past actions have been incremental, raising questions about the potential size and effectiveness of future interventions.”

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

In commodities, gold rose to a record high as markets awaited Fed easing. Elsewhere, oil held steady after posting its first weekly gain in a month as a fall in Libyan exports was offset by China’s economic woes.

Main events this week:

• ECB speakers, including Vice President Luis de Guindos and Chief Economist Philip Lane, on Monday

• Production in the American empire, Monday

• Trading in Singapore, Tuesday

• The Federal Reserve begins a two-day meeting on Tuesday

• US corporate stocks, industrial production, retail sales, Tuesday

• CPI Canada, Tuesday

• Indonesia tariff decision, Wednesday

• Retail sales in South Africa, CPI, Wednesday

• British CPI, Wednesday

• Eurozone CPI, Wednesday

• US interest rate decision, Wednesday

• Brazil interest rate decision, Wednesday

• Australian unemployment, Thursday

• New Zealand GDP, Thursday

• Taiwan tariff decision, Thursday

• Tariff decision Norway, Thursday

• British interest rate decision, Thursday

• Tariff decision South Africa, Thursday

• Prime rates for Chinese loans, Friday

• Japanese CPI, interest rate decision, Friday

• ECB President Christine Lagarde speaks on Friday

• Bank of Canada Governor Tiff Macklem speaks Friday

Some of the major moves in the markets:

Stocks

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

• Futures on the S&P 500 were little changed

• Nasdaq 100 futures fell 0.2%

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index rose 0.5%

• The MSCI Emerging Markets Index rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%

• The euro rose 0.3% to $1.1111

• The Japanese yen rose 0.7% to 139.83 per dollar

• The offshore yuan rose 0.1% to 7.0917 per dollar

• The British pound rose 0.3% to $1.3159

Cryptocurrencies

• Bitcoin fell 1.8% to $58,753.26

• Ether fell 3% to $2,293.44

Bonds

• The yield on ten-year government bonds fell by one basis point to 3.64%

• The German ten-year yield remained little changed at 2.14%

• The British ten-year yield fell by one basis point to 3.76%

Raw materials

• Brent crude rose 0.5% to $71.97 per barrel

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

This story was produced with the help of Bloomberg Automation.

–With help from Matthew Burgess and Margaryta Kirakosian.

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