(Bloomberg) — Asian equities slipped after Federal Reserve chair Jerome Powell downplayed the prospect of further interest-rate hikes. The yen resumed losses after a sudden jolt higher that hinted at official intervention.
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The Japanese currency fell as much as 1% against the dollar in early Thursday trading, after a sudden surge late Wednesday in New York sent the currency more than 3% higher from its low for the day.
Japan’s top currency official Masato Kanda said he had nothing to say on whether officials intervened when asked in the aftermath of the move. An index of the dollar fell for a second day Thursday, reflecting the drop in US yields.
“It would certainly appear to have the characteristics of an intervention,” said Nathan Thooft at Manulife Investment Management. “Repeated attempts certainly send a message to the market and while it may not fully hold, it should have some impact on preventing further meaningful weakness.”
Equity benchmarks for Japan and South Korea fell while Australian stocks were little changed after the S&P 500 closed 0.3% lower Wednesday. Futures contracts for US equities advanced in Asian trading with Hong Kong markets set to return after a holiday, while those in mainland China remain closed.
The Fed downplayed the potential for imminent rate hikes, offering a salve for bond markets, and said it will shrink its balance sheet at a slower pace to ease strains in money markets.
“The basic message was that cuts have been delayed — not derailed,” said Krishna Guha at Evercore. “Relative to expectations, this is a very measured hawkish reset.”
Treasuries were little changed in Asia after climbing Wednesday. Swaps traders boosted bets on policy easing in 2024. At one point, markets were headed for their biggest cross-asset surge on a Fed day this year. Australian and New Zealand yields opened lower Thursday, following Wednesday’smove in Treasuries.
Powell said it’s unlikely the Fed’s next move would be to raise rates, saying authorities would need to see persuasive evidence that policy is not tight enough to bring inflation back toward the central bank’s 2% target.
“Jay Powell threaded the needle perfectly today,” said Ronald Temple at Lazard Asset Management. “He did not take the bait to talk about hiking rates. I believe the FOMC’s cautious approach will be a winner over time as inflation subsides as we progress through the year.”
While the Fed signaled it’s not planning to cut rates so soon, the fact that officials are slowing the pace at which they shrink their balance sheet, it will mean less upward pressure on bond yields, according to Sonu Varghese at Carson Group.
In the plan unveiled Wednesday, the Fed said it will lower the monthly cap on how much Treasuries it will allow to mature without being reinvested, to $25 billion from $60 billion, while keeping the cap for mortgage-backed securities unchanged at $35 billion.
In commodities, oil held a slump as a jump in US crude inventories to the highest since June added to concerns about demand. West Texas Intermediate traded at around $79 a barrel Thursday after dropping 3.6% on Wednesday. Elsewhere, gold advanced as investors found comfort in the Fed’s hawkish signals.
Key events this week:
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Eurozone S&P Global Manufacturing PMI, Thursday
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US factory orders, initial jobless claims, trade, Thursday
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Apple earnings, Thursday
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Eurozone unemployment, Friday
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US unemployment, nonfarm payrolls, ISM Services, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures rose 0.4% as of 9:16 a.m. Tokyo time
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Hang Seng futures were unchanged
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Japan’s Topix fell 0.2%
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Australia’s S&P/ASX 200 rose 0.1%
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Euro Stoxx 50 futures fell 1.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.3%
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The euro was little changed at $1.0714
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The Japanese yen fell 0.8% to 155.87 per dollar
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The offshore yuan was little changed at 7.2396 per dollar
Cryptocurrencies
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Bitcoin surged 1.7%, more than any closing gain since April 22
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Ether rose 1% to $2,965.99
Bonds
Commodities
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West Texas Intermediate crude rose 0.4% to $79.28 a barrel
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Spot gold rose 0.2% to $2,324.73 an ounce
This story was produced with the assistance of Bloomberg Automation.
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