(Bloomberg) — Japanese stocks led a regional gauge lower as traders look ahead to decisions from the Federal Reserve and the Bank of Japan this week.
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The MSCI AC Asia Pacific Index declined, with the Nikkei 225 falling as much as 2.1% even as benchmarks for Australia and Hong Kong rose. Futures for US stocks slipped after the S&P 500 rose 0.1% while the Nasdaq 100 slid 0.5%, as investors continue to rotate out of the tech megacaps that have powered the bull market.
The dollar consolidated after a four-day decline as traders boosted bets the Fed will deliver a half-point rate cut Wednesday. Markets have been predicting a cut of anywhere between 25 and 50 basis points as US economic data have started to weaken, though inflation has remained sticky. US retail sales out later Tuesday may offer clues on the upcoming Fed decision. Treasuries trade little changed.
“The mood today in Asia should be mostly positive, with the US rates market now leaning heavily toward a 50 basis point Fed rate cut,” said Tony Sycamore, an analyst at IG Australia Pty Ltd. But, the upcoming BOJ meeting may affect sentiment toward Japanese shares and, “should Ueda indicate an October rate hike is possible, USD/JPY and the Nikkei will likely come under renewed selling pressure.”
Read: The Fed Should Go Big Now and I Think It Will: Bill Dudley
In Hong Kong, Chinese appliance giant Midea Group Co. shares climbed as much as 9.5% in its stock market debut, after robust demand for the biggest public stock offering in three years revives hopes for the city’s languishing market. Other in the pipeline in Hong Kong include ride-hailing company Didi Global Inc., which was forced to delist from the New York Stock Exchange by Chinese authorities.
Concern continues about weakness in China’s economy. Disappointing economic data over the weekend may add pressure on the authorities to ramp up fiscal and monetary stimulus if the nation is to reach this year’s growth target.
The country faces yet another challenge in proposed tariffs by the US in areas such as medical products. Malaysian glove-maker shares including Top Glove Corp surged on Tuesday after the US was expected to finalize tariffs on Chinese goods this month.
Trading in China, Taiwan and South Korea was shut for public holidays.
Meanwhile, the yen was steady after strengthening beyond 140 per dollar for the first time since July 2023 on Monday, as the Japanese currency extended its rally from the weakest point in nearly 38 years in July.
The yen has been steadily appreciating from market expectations that the interest rate differential between the US and Japan will narrow further leading to a decline in the export-heavy Japanese equities.
The Bank of Japan is expected to stay on hold on Friday after raising rates twice this year with all 53 economists surveyed by Bloomberg said Ueda’s board will leave the benchmark rate at 0.25% when its two-day meeting concludes Friday.
Leveraged funds are diverging in their positions on the yen. Some short-term funds locked in profits ahead of the monetary-policy decisions this week, while others are looking to increase their long-yen positions on bets for a large rate cut by the Fed.
JPMorgan Chase & Co. is among firms raising its yen forecasts, citing expectations that US and Japanese interest rates will be normalized, and also potential weakness in the dollar.
In commodities, gold remained near record levels, with traders betting that it’ll benefit from a weaker US dollar and lower Treasury yields off the Fed decision. Other precious metals gained, with silver rising toward $31 an ounce, up for a seventh straight day and on pace for the longest stretch of daily gains since 2019.
Key events this week:
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Germany ZEW, Tuesday
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US business inventories, industrial production, retail sales, Tuesday
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Eurozone CPI, Wednesday
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Fed rate decision, Wednesday
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UK rate decision, Thursday
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US US Conf. Board leading index, initial jobless claims, US existing home sales, Thursday
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FedEx earnings, Thursday
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Japan rate decision, Friday
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Euro-zone consumer confidence, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 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
Commodities
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West Texas Intermediate crude rose 0.6% to $70.53 a barrel
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Spot gold fell 0.2% to $2,577.21 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Masaki Kondo and Jake Lloyd-Smith.
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