Japanese Yen Remains Confined In A Familiar Range Near Multi-decade Low Against USD

Economic

Forex

Summary:

The Japanese Yen struggles to capitalize on the overnight modest uptick against the USD.The BoJ’s dovish stance undermines the JPY, though intervention fears limit the downside.

The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Wednesday, albeit it lacks follow-through and remains confined in a familiar range held over the past two weeks or so. Investors remain on alert amid the possibility of intervention by Japanese authorities to prevent a destabilizing fall in the domestic currency. This, along with a generally weaker sentiment around the equity markets, turns out to be a key factor lending some support to the safe-haven JPY.

The US Dollar (USD), on the other hand, is seen consolidating the previous day's retracement slide from a five-month top and contributes to the mildly offered tone surrounding the USD/JPY pair. Any meaningful appreciating move for the JPY, however, seems elusive in the wake of the Bank of Japan's (BoJ) dovish language, signaling that the next rate hike will be some time away. In contrast, the markets continue trimming their bets that the Federal Reserve (Fed) will cut interest rates in June.

Expectations that the gap between US and Japanese interest rates will stay wide might further hold back the JPY bulls from placing aggressive bets, which, in turn, should help limit the downside for the USD/JPY pair. Investors now look to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI. This, along with speeches by influential FOMC members, including the Fed Chair Jerome Powell, should provide a fresh impetus later today.

Daily Digest Market Movers: Japanese Yen lacks firm near-term direction amid mixed fundamental cues

Japanese Finance Minister Shunichi Suzuki repeated his warning that authorities were ready to take appropriate action against excessive exchange-rate volatility and offered some support to the Japanese Yen.

The uncertainty over the Federal Reserve’s plans to cut interest rates, along with persistent geopolitical risks, tempers investors' appetite for riskier assets and further benefits the JPY's relative safe-haven status.

The Bank of Japan struck a dovish tone at the end of the March meeting and stopped short of offering any guidance about future policy steps, or the pace of policy normalization, which caps gains for the JPY.

Odds of a June Fed rate cut dip below 50% after data released this week showed that the US manufacturing sector expanded in March for the first time since September 2022 and that demand for labor remains elevated.

The US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday that the number of job openings on the last business day of February stood at 8.75 million.

A separate report by the Commerce Department's Census Bureau showed that new orders for US-manufactured goods rebounded more than expected, by 1.4% in February following a 3.8% drop in the previous month.

San Francisco Fed President Mary Daly said on Tuesday that inflation is gradually decreasing, though the process is erratic and gradual, and that maintaining the status quo is the appropriate policy at present.

Adding to this, Cleveland Fed President Loretta Mester expects the central bank to cut rates later this year, though noted that moving rates down too soon would risk undoing the progress made on inflation.

This comes on the back of Fed Chair Jerome Powell's remarks on Friday, saying that there was no need to be in a hurry to cut interest rates and raised doubts if the central bank will cut rates three times this year.

The yield on the benchmark 10-year US government bond advanced to a four-month high, helping the US Dollar to stall the overnight pullback from a multi-month top and acting as a tailwind for the USD/JPY pair.

Technical Analysis: USD/JPY extends its consolidative price move in a familiar range, bullish bias remains

From a technical perspective, the range-bound price action witnessed over the past two weeks or so might still be categorized as a bullish consolidation phase against the backdrop of a strong rally from the March swing low. Moreover, oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside. That said, bulls might need a sustained breakout through the trading range resistance, around the 152.00 mark, or a multi-decade high before positioning for any further appreciating move.

On the flip side, the lower end of the aforementioned trading range, around the 151.10-151.00 area, is likely to protect the immediate downside. Some follow-through selling below the 150.85-150.80 horizontal resistance breakpoint, now turned support, could expose the next relevant support near the 150.25 area. This is closely followed by the 150.00 psychological mark, which if broken decisively might turn the USD/JPY pair vulnerable to accelerate the corrective decline further towards the 149.35-149.30 region before eventually dropping to the 149.00 mark.

Source:FXStreet

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

FastBull Featured

Daily News

[Quick Facts]

1. Daly says three rate cuts is a reasonable expectation for 2024.

2. U.S. Job openings rise modestly.

3. OPEC oil output stays steady as the group's latest cutbacks stall.

4. Mester says the Fed is likely to start cutting rates in June.

5. U.S. and global economy continues to improve, U.S. bond bulls losing.

[News Details]

Daly says three rate cuts is a reasonable expectation for 2024

Fed officials repeated last month that three rate cuts are expected for 2024. "I think that is a very reasonable baseline," said San Francisco Fed President Mary Daly in a speech on Monday. Given the strong economic growth momentum in the U.S., however, there is no urgency to adjust the bank rates, and staying put is right currently.

Inflation is falling but at a bumpy and slow pace. The timing and size of rate cuts will depend on how fast inflation slows and whether the economy weakens. Three rate cuts for 2024 is a forecast, not a commitment, and it is too early to take this as a pre-determined path.

U.S. Job openings rise modestly

The U.S. Bureau of Labor Statistics released the results of the Job Openings and Labor Turnover Survey (JOLTS) showing that the number of job openings at the end of February was 8,756,000, largely in line with market expectations of 8,760,000, while the January figure was revised down from 8,863,000 to 8,748,000.

The data suggests that U.S. labor demand is stabilizing at a high level. Layoffs rose to a nearly one-year high during the month, driven by increased layoffs in the leisure and hospitality sector. However, the quits rate, which measures voluntary job leavers as a share of total employment, held at 2.2%, the lowest level since 2020, suggesting that people lack confidence in their ability to find other jobs in the current market or reflecting a narrowing of the wage premium for those seeking to change jobs.

While the number of job openings has fallen back from its peak, the pace of decline has slowed markedly since it dropped below 9 million last October. The ratio of job openings to the number of unemployed has fallen to 1:1.36, a four-month low, suggesting that the U.S. labor market remains tight.

As the unemployment rate rises and the ratio of job openings to the unemployed falls, wage pressures are expected to weaken further. With the labor market coming into better balance, the Fed should feel more confident about cutting rates this summer.

OPEC oil output stays steady as the group's latest cutbacks stall

OPEC's crude oil production held steady last month, but some members stalled on the production cutbacks. OPEC produced 26.86 million barrels of crude per day in March, virtually unchanged from the previous month, according to a survey. It has been three months since a new deal was struck to prop up oil prices by cutting production, and several OPEC countries, such as Saudi Arabia and Kuwait, are adhering to the deal, but some others are not. Iraq, the United Arab Emirates, and Gabon together have produced hundreds of thousands of barrels a day, exceeding their agreed quota.

Mester says the Fed is likely to start cutting rates in June

Cleveland Fed President Loretta Mester said in a speech Monday that the Fed has made substantial progress on disinflation, but the inflation rate is still above the 2% target. Inflation for January and February was more stubborn than in the second half of last year, proving once again that the disinflation process will be "bumpy".

Economic growth is expected to slow somewhat this year compared to last year, but it will be slightly above the trend growth of 2%; the labor market is expected to remain balanced this year, with the unemployment rate rising slightly from its current very low level; and further progress in disinflation is expected to be made but at a slower rate than last year.

The greater risk at this point is to start cutting interest rates too soon, and the Fed does not have to take risks to do so in the context of a strong labor market and economic growth. Monetary policy is in a good place right now. If the labor market deteriorates, the Fed can cut rates quickly. If inflation stagnates, the Fed will maintain a restrictive monetary stance for longer. The Fed is not expected to gain enough confidence to decide on rate cuts at the next FOMC meeting, but things could change at the June meeting.

U.S. and global economy continues to improve, U.S. bond bulls losing

With the cyclical strength of the U.S. and global economies, the risk of a sustained rise in U.S. Treasury yields has increased, and long positions are reduced. Leading indicators point to a cyclical upturn in the U.S. and global economies, and the current indicators have confirmed this. 10-year U.S. bond yields have been rising steadily throughout the year, recently driven by real yields. Judging from this, the market is perhaps largely assuming that U.S. bond yields will move higher. The non-farm payrolls data due Friday could challenge this as the job market shows signs of slowing. However, the data is unlikely to change the current market expectation or reduce the risk of higher inflation.

[Focus of the Day]

UTC+8 17:00 Eurozone HICP (Mar)

20:15 U.S. ADP (Mar)

21:45 Fed Governor Bowman Speaks

22:00 U.S. ISM Non-manufacturing PMI (Mar)

Risk Warnings and Disclaimers

Add to Favorites

Thomas

Economic

Forex

The yuan is a whisker away from the weak end of its onshore trading band, the latest sign that a recent slew of upbeat economic data hasn’t been enough to bolster the Chinese currency.

China’s currency slid to a four-month low against the dollar in onshore trading Tuesday and came within a few pips of the lower end of the trading range permitted by the central bank. In the more freely traded offshore market, the yuan has been hovering at a weaker level than the onshore daily limit for some eight consecutive sessions. Signs of stress are also growing in the options market.

The persistent pressure on the currency indicates that traders expect Beijing to lean on a weaker yuan to help revive growth in the absence of massive stimulus. Its task is complicated by the need to prevent disorderly capital outflows. To stabilize the market, policymakers stuck with its support for the foreign-exchange market with a stronger-than-expected daily fixing on Wednesday.

The phenomenon also mirrors the broader Asian trend, where regional currencies have buckled under the weight of a stronger dollar as the Federal Reserve signals it’s in no rush to ease policy.

The central bank is sticking to the currency stability playbook, said Christopher Wong, strategist at Oversea-Chinese Banking Corp. But “with most Asian currencies depreciating, I won’t rule out the scenario that policymakers are taking the opportunity to let the yuan depreciate slightly” to be in line with others, he added.

Here are three charts that show the yuan’s stress in currency markets:

Testing Boundaries

The yuan traded less than 20 pips away from the lower daily trading limit against the dollar on Tuesday, the nearest it’s been to the band since November. The managed currency’s move is confined to 2% on either side of the daily reference rate, known as the fixing, set by the People’s Bank of China.

Investors were briefly blocked from some yuan swap transactions that implied the currency was outside the weak end of its fixed trading band against the dollar on Tuesday, according to traders.

Yuan Pressure Mounting as Green Shoots Fail to Lift Mood_1

Beyond Limit

The offshore yuan, which faces far fewer restrictions, has been trading at a weaker level than the lower end of the onshore trading band for eight sessions as of Tuesday. That’s the longest stretch since the People’s Bank of China made its yuan fixing regime more market oriented in August 2015.

Yuan Pressure Mounting as Green Shoots Fail to Lift Mood_2

Buying Protection

Bearish yuan sentiment is also picking up in the options market. A gauge of demand for one-month dollar-yuan call options over put options, a measure known as risk reversal, remains elevated after touching a seven-month high late last month.

Yuan Pressure Mounting as Green Shoots Fail to Lift Mood_3

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Zi Cheng

Stocks

US Equity Markets: US Factory Orders and Job Openings

On Wednesday, overnight US economic indicators warrant investor attention amidst increasing uncertainty about a June Fed rate cut.

JOLTs job openings remained steady at 8.75 million in February after a downward revision to the January reading of 8.86 million. Economists forecast JOLTs job openings of 8.75 million. Importantly, the quit rate rose, signaling workforce confidence in labor market conditions. JOLTs job quits rose from 3.446 million to 3.484 million.

Factory orders beat expectations, rising by 1.4% in February after sliding by 3.8% in January.

10-year US Treasury yields ended the Tuesday session up 0.93% to 4.353%, down from a session high of 4.405%.

On Tuesday, the Nasdaq Composite Index and the S&P 500 declined by 0.95% and 0.72%, respectively. The Dow slid by 1.00%.

Asia Economic Calendar: Service Sector PMIs in the Spotlight

On Wednesday, the Asian economic calendar will also warrant investor attention. Numbers from China could drive demand for riskier assets after better-than-expected manufacturing data.Economists forecast the Caixin Services PMI to increase from 52.5 to 52.7 in March. The figures will likely influence buyer demand for ASX 200 and Hang Seng Index-listed stocks.Service PMI numbers from Japan may influence the Bank of Japan rate path. The BoJ is eyeing the services sector to fuel demand-driven inflation. Economists expect the Jibun Bank Services PMI to rise from 52.9 to 54.9 in March.

Commodities: Crude Oil, Gold, and Iron Ore Price Trends

Commodity price trends can impact market risk sentiment and the ASX 200. Crude oil and gold prices were higher on Tuesday. SGX TSI Iron ore prices also trended higher.

The USD/JPY, the Intervention Zone, and the Nikkei

The Nikkei remains in the hands of the USD/JPY and the Japanese government. Falling bets on a June Fed rate cut could drive buyer demand for the US dollar. An accommodative Bank of Japan would leave the Japanese government to counter a USD/JPY break above the 152 barrier.

The Futures Markets

On Wednesday, the ASX 200 and the Nikkei were down 30 and 230 points, respectively.

ASX 200

The ASX 200 declined by 0.11% on Tuesday. Tech stocks pressured the ASX 200 on fading expectations of a June Fed rate cut. The S&P ASX All Technology Index (XTX) ended the session down 0.52%. Bank and mining stocks had mixed sessions. However, gold (XAU/USD) and oil limited the losses.

Gold (XAU/USD) stocks Northern Star Resources Ltd. (NST) and Evolution Mining Ltd (EVN) surged by 2.56% and 5.87%, respectively.

Woodside Energy Group Ltd (WDS) ended the session flat, while Santos Ltd (STO) advanced by 1.16%.

BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) ended the day up 1.94% and 0.68%, respectively. Iron ore prices advanced on the Singapore futures exchange, supporting the Tuesday session gains. However, Fortescue Metals Group Ltd. (FMG) bucked the trend, falling 1.09%.

National Australia Bank Ltd. (NAB)and Westpac Banking Corp. (WBC) rose by 0.52% and 0.04%, respectively. ANZ Group Holdings Ltd. (ANZ) and Commonwealth Bank of Australia (CBA) saw losses of 0.03% and 0.22%, respectively.

Hang Seng Index

On Tuesday, the Hang Seng Index rallied 2.36%. Real estate and tech ended the session in positive territory. The Hang Seng Tech Index (HSTECH) and Hang Seng Mainland Properties Index (HSMPI) saw gains of 1.89% and 1.90%, respectively. Investors responded to the better-than-expected private sector PMIs from China.

Tencent (0700) and Alibaba (9988) advanced by 1.78% and 1.07%, respectively.

Bank stocks had a positive start to the second quarter. HSBC (0005) rose by 1.23%. China Construction Bank (0939) and Industrial Commercial Bank (1398) rallied 2.75% and 2.28%, respectively.

The Nikkei 225

The Nikkei gained 0.09% on Tuesday. A steadier USD/JPY offered market comfort despite hovering within the intervention zone. Semiconductors tracked their Nasdaq-listed counterparts into positive territory, delivering the gains for the Nikkei.

Bank stocks saw more losses after the Monday sell-off. Sumitomo Mitsui Financial Group Inc. (8316) and Mitsubishi UFJ Financial Group Inc. (8306) declined by 0.12% and 0.03%, respectively.

It was another mixed session for the main components of the Nikkei.

Tokyo Electron Ltd. (8035) rallied 3.42%, with Fast Retailing Co. Ltd. (9983) advancing by 0.13%.

However, Softbank Group Corp. (9948) and Sony Group Corporation (6758) fell by 0.39% and 0.27%, respectively. KDDI Corp. (9433) ended the session down 0.04%.

Source: FX Empire

Risk Warnings and Disclaimers

Add to Favorites

Alex

Stocks

Energy

The near-term outlook for oil and gas remains weak amid soft pricing and declining rig activity. Consequently, we’re not surprised that energy stocks have underperformed the broader US market over the trailing 12 months. That said, the industry’s M&A outlook remains generally positive. The recent Diamondback-Endeavor deal consolidates more top-tier acreage within fewer key operators. It also allows Diamondback to once again implement its successful playbook of cutting costs and returning excess cash to shareholders.

We think OPEC has failed to protect oil prices through supply cuts. The organization will likely have to extend and deepen voluntary cuts through 2024, more than it initially indicated. US mergers and acquisitions activity within the Permian, as well as associated production cuts, remain the most positive news for OPEC, since public producers are sharply cutting combined rig counts from growth-oriented private producers.

Energy Stocks: OPEC’s Failure to Defend Oil Prices Has Created a Supply Glut, Hurting Performance_2

ExxonMobil recently delayed its Golden Pass terminal to 2025. We therefore don’t expect any material new US liquefied natural gas, or LNG, export terminals will enter service in 2024, which will delay demand from the Gulf Coast into 2025. Even so, the Biden administration’s pause on new LNG terminal approvals won’t affect under-construction terminals. In fact, we think LNG terminals will still double US LNG exports over the new few years. However, Asian and European LNG customers questioning US LNG export reliability will likely curtail prices.

Energy Stocks: OPEC’s Failure to Defend Oil Prices Has Created a Supply Glut, Hurting Performance_3

The biggest takeaway from M&A activity is that the US production growth curve will flatten further. Public firms are largely seeking to maximize returning cash to shareholders, in sharp contrast to private entities, which were far more focused on growth. In 2023, US oil production increased by about 850,000 barrels per day. 2024 estimates are already falling rapidly, with 2024 growth of 150,000-400,000 barrels per day. For the rest of 2024, modest inventory builds support ongoing weakness in the oil market. Even with the extension of cuts from OPEC, it’s clear that they’re barely supporting a somewhat balanced oil market versus pushing deeply into undersupply territory and supporting prices closer to $100/bbl.

Energy Stocks: OPEC’s Failure to Defend Oil Prices Has Created a Supply Glut, Hurting Performance_4

Top Energy Sector Picks

Schlumberger

Fair Value Estimate: $60.00
Morningstar Rating: 3 stars
Morningstar Economic Moat Rating: Narrow
Morningstar Uncertainty Rating: High

High demand for oilfield services lends service firms a good deal of pricing power, which we expect will support margin expansion over the next few quarters. Schlumberger’s SLB leading-edge technological advancements continue to distinguish the firm from peers. Its myriad innovations consistently add value for customers, preserving its ability to command premium pricing over and above the currently favorable operating environment.

TC Energy

Fair Value Estimate: $47.00
Morningstar Rating: 4 stars
Morningstar Economic Moat Rating: Narrow
Morningstar Uncertainty Rating: Medium

TC Energy TRP is dealing with multiple investor concerns: too-high debt, lingering worries over future impacts from the Coastal GasLink overruns, and skepticism over the planned 2024 liquids spinoff. In contrast, we think the completed CAD 5 billion-plus in asset sales, plus another CAD 3 billion in additional sales and CAD 1 billion in optimization opportunities, provide plenty of capital to reduce debt. The liquids spinoff should be capitalized at 5 times debt/EBITDA, suggesting more leverage to be moved off TC Energy’s balance sheet. We believe the liquids spinoff will highlight the quality and growth opportunities available in the gas and power portfolios, including carbon capture and hydrogen.

APA

Fair Value Estimate: $65.00
Morningstar Rating: 4 stars
Morningstar Economic Moat Rating: None
Morningstar Uncertainty Rating: Very High

APA is hoping for a game changer with its exploration assets in Suriname. The firm has announced a string of promising discoveries, and it may have a final investment decision in 2024. We think the project will move forward and the market isn’t giving enough credit. Our fair value estimate assumes three production vehicles with 180 mb/d capacity. That pegs Suriname at a sizable percentage of APA’s equity, so we like the upside as a catalyst-driven name that might outperform in a challenging oil and gas price environment.

Source: Morning Star

Risk Warnings and Disclaimers

Add to Favorites

SAXO

Economic

Central Bank

Forex

Sterling has been the best performing G10 currency so far in Q1, as the outlook for the UK economy has shifted in a big way compared to 2023. Last year, UK economy faced a constant stagflation threat due to high services inflation and wage pressures but deteriorating economic activity. However, the economy is looking at a better 2024 which has given room to the Bank of England to delay its rate cut cycle. Markets expect BOE to cut rates in August, compared to Fed and ECB that are expected to start cutting rates in June.

On Friday, GBP/USD rose to fresh YTD highs of close to 1.29. A neutral UK budget and weaker US dollar has also been pushing sterling higher, but the rally is likely to be tested in the coming days and weeks. EUR/GBP tested the 0.85 support again on Friday before bouncing higher. We see the following as key tests in the weeks ahead for the GBP resilience to be maintained.

Bearish equity sentiment

As we have noted previously, GBP/USD is a compelling risk sentiment play. Our regression analysis between different FX pairs and MSCI All-Country World Index (MSCI ACWI) on a quarterly basis over the last two decades showed a high correlation for GBP/USD to the global stocks index.

Equity sentiment is starting to falter after strong gains in Magnificent 7 stocks since the start of the year. The big single stock story on Friday was the huge intraday move in Nvidia – the market darling – with the stock moving 11% from the high to the low. This is a very bad signal in terms of market health, given that Nvidia is a $2 trillion company. Key focus this week is whether the market will reverse, and volatility will pick up. If that was to happen, it could mean some safe-haven flows back to the dollar and other safe-havens such as JPY and CHF, and a hit to the risk sensitive currencies such as GBP.

The US CPI release today is also making markets jittery. Any risk of a hot February inflation will seriously question the disinflation trends, and potentially shift the Fed expectations in a hawkish manner. Dampening Equity Sentiment Could Test GBP Resilience_1

Dampening Equity Sentiment Could Test GBP Resilience_1

BOE comments and UK wages

BoE policymaker Catherine Mann said on Monday that the UK has a long way to go for inflation pressures to be consistent with the central bank's 2% target. However this did not bring around strong gains in sterling on Monday as the expectation around delay in rate cuts is well priced in by markets. In fact, sterling was the worst performer in G10 FX space on Monday, possibly underpinned by a bearish equity sentiment.

Last month, BOE Governor Bailey said there had been “encouraging signs” on the key indicators in the jobs market and services prices, even as he stressed that policymakers are looking for evidence that progress can be sustained.

And the data out today on UK labor market data for the three months ending January showed that labor market is cooling, even as it remains tight by historical standards. Wage growth, excluding bonuses, came in softer than expected at 6.1% YoY (vs. 6.2% exp) in the three months to January. In the same period, Average Earnings growth, including bonuses, eased to 5.6% from the prior reading of 5.8% and expected growth of 5.7%.

The BOE noted at the last meeting that risks from domestic prices and wages were more evenly balanced. Its forecast is for inflation to fall temporarily to 2% in Q2 2024, before picking up in Q3 and Q4, and settling around 2.75% by the end of the year. These wage numbers could easily be a factor underpinning a dovish shift in BOE votes, where two of the members have been voting for a rate hike still at the last meeting. Economic growth concerns will also underpin, especially after the budget boost has remained minimal. UK unemployment rate increased to 3.9% in the three months to January, and consumer confidence slipped back in February, suggesting households are not ready to splash out. Next BOE meeting is on March 21, and February CPI will be released on March 20. Traders could wait for US CPI event risks before more seriously considering a bearish posturing for sterling.

Positioning and technical indicators

The recent COT report for the week ended 5 March 2024 showed that speculators opened 10,300 buy contracts and closed 1,700 short positions in GBP. As a result, the net position of non-commercial traders increased by 12,000 contracts in a week. The long position in GBP is now at its highest since August 2023. Dampening Equity Sentiment Could Test GBP Resilience_2

Dampening Equity Sentiment Could Test GBP Resilience_2

Technical indicators are also signaling that sterling may be getting close to overbought territory. We use RSI and Bollinger Bands to show short-term overbought conditions in the charts below, which could signal near-term, pullback in case of a data miss, especially given the lack of follow-through on Friday’s break to fresh YTD highs.

The first key support for GBP/USD is at the 1.28 handle, following which strong support is seen at 21DMA at 1.2680. GBP has gained the most against the JPY and CHF year-to-date, followed by AUD. If BOJ pivot expectations continue to grow, GBP/JPY could test 100DMA around 186. Likewise, GBP/AUD risks slippage towards 100DMA around 1.9150. Dampening Equity Sentiment Could Test GBP Resilience_3

Dampening Equity Sentiment Could Test GBP Resilience_3

Dampening Equity Sentiment Could Test GBP Resilience_4

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Zi Cheng

Economic

Stocks

Stocks in Asia fell Wednesday after solid economic readings and higher commodities prices spurred speculation that major central banks will keep interest rates higher for longer.

Benchmarks in South Korea and Hong Kong led the region’s decline. Mainland Chinese shares were little changed after a report showed expansion in the Caixin purchasing managers’ indexes. Contracts on US equities edged lower after the S&P 500 fell 0.7% in Tuesday trading.

Taiwanese equities weakened on news that the region had been hit by the strongest earthquake in 25 years. Shares in Taiwan Semiconductor Manufacturing Co. were lower as the company evacuated factory areas following the shock, endangering production at the world’s largest maker of advanced chips.

Pressure on US equities followed better-than-estimated data on US job openings and factory goods orders that added to skepticism about the pace of Federal Reserve easing. Traders now project fewer rate cuts in 2024 than the central bank itself.

“Stock bulls may find it difficult justifying buying stocks at these elevated levels as yields rise,” said Fawad Razaqzada at City Index and Forex.com. “Rising cSourrude oil prices pose additional risk to the inflation outlook. Additionally, numerous jobs reports are expected throughout the week. Trading could be volatile.”

Source: Bloomberg

Treasuries were little changed during Asian hours after further selling pushed yields higher on Tuesday, when the 10-year yield touched the highest level since November. The moves were reflected in Australian and New Zealand yields, which climbed Wednesday.

An index of the dollar was little changed. The yen was also flat against the greenback at around 151 per dollar, remaining around the weakest level of the year — keeping alive the possibility of official intervention to the support the currency.

Tatsuo Yamasaki, Japan’s former vice finance minister for international affairs, said the government “can step in as soon as the yen falls beyond the current range,” in an interview Tuesday.

The yuan, meanwhile, traded close to the weak end of its onshore trading band, the latest sign that a recent slew of upbeat economic data hasn’t been enough to bolster the Chinese currency.

In commodities, oil steadied following a rally Tuesday after an industry report pointed to a drawdown in US crude inventories, ahead of an OPEC+ meeting at which the group is expected to affirm current supply cuts. Gold was steady to hold a rally over the past six sessions, while Bitcoin was little changed at around $65,500.

No Rush

As traders awaited remarks from Fed Chair Jerome Powell on Wednesday, they weighed comments from two officials who vote on monetary policy decisions this year. San Francisco Fed President Mary Daly and her Cleveland counterpart Loretta Mester said they still expect the central bank to cut rates three times in 2024 — though they’re in no rush to begin lowering borrowing costs.

Swap traders are currently projecting about 65 basis points of rate reductions this year — less than the 75 basis points signaled in the Fed’s latest “dot plot” forecasts.

“Our base case is that the Fed engineers a soft landing and starts to cut rates in the second half of the year,” said Gargi Chaudhuri at BlackRock. “The downside risks to economic growth have diminished, so the risk of only two Fed rate cuts now appears higher than the risk of four cuts.”

In other corporate news, Tesla Inc. delivered just 386,810 vehicles in the first three months of the year, missing Bloomberg’s average estimate by the biggest margin ever in data going back seven years. The carmaker’s shares fell 4.9% Tuesday in New York.