Asian Currencies in Focus as Japan Warns on Yen: Markets Wrap

(Bloomberg) — A gauge of Asian currencies slipped for a third session, kicking off a week that includes measures of inflation that may help guide bets on the outlook for global interest rates. The yen was steady after Japan’s top currency official ratcheted up intervention rhetoric.

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An index for the region’s stocks also declined with equities in South Korea, Hong Kong and mainland China all falling, while those for Japan fluctuated. US share futures were also softer after the S&P 500 fell on Friday amid a large options expiry. Treasury 10-year yields were steady in Asian trading.

The moves come as markets are at a critical juncture for positioning into the second half of 2024 with the outlook for central bank policy rates from New Zealand to Japan and the US unclear. Inflation prints in Australia and Tokyo as well as the Federal Reserve’s preferred gauge of consumer costs may help, after data showed US services activity picked up to the fastest pace in more than two years.

Bloomberg’s Asia dollar index fell, while the Japanese yen was below 160 per dollar as Masato Kanda said officials are ready to intervene to support the currency 24-hours a day, if needed. Traders have been wary of an escalation in official rhetoric after the yen’s 1.6% slide this month, while retail investors appear to be reloading bets for a rebound.

“We suspect the next round of intervention is likely to come after yen triggers buy orders perched above the late April 160.20ish high,” Tony Sycamore, market analyst at IG Australia in Sydney, said.

China’s currency fixing was little changed at 7.1201 per dollar on Monday, after the country’s assets sold off again last week as policymakers showed no urgency to roll out more stimulus.

The yuan’s weakness is symptomatic of deteriorating sentiment toward the world’s second-largest economy, which is also seeing a bond market rally as investors seek out haven assets. Benchmark yields have tumbled toward record lows amid mixed economic data and expectations of further stimulus.

Separately, China and the European Union have agreed to start talks on the bloc’s plans to impose tariffs on electric vehicles imported from the Asian nation.

This week, while parsing inflation data, traders will also be keeping watch on rising political risks. The first UK prime ministerial and US presidential debates are scheduled and the first round of voting in the French legislative election is set to take place this coming weekend.

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“If Trump continues to lead, we do expect the election to emerge as a significant driver of markets at some point in the coming months,” said Sarah Bianchi, analyst at Evercore ISI.

Triple Witching

The S&P 500 fell on Friday as an estimated that $5.5 trillion of options expired during the quarterly event ominously known as “triple witching.” Nvidia Corp. played an added role, with the value of contracts tied to the chipmaker the second-largest of any underlying asset, lagging only the S&P 500.

Traders and strategists are beginning question how long this year’s rally can persist as bond and currency markets gyrate from shifting bets on central bank rate cuts and election uncertainty in Europe. A gauge of global equities has climbed 2.3% this quarter, set for a third straight quarterly gain while US stocks have notched fresh highs this month amid the AI frenzy.

At a stock level, a correction is already starting to play out as market breadth is extremely weak with momentum for a few shares continuing almost unabated, according to Morgan Stanley. That may remain into the second half however until there’s a change in the macro outlook, such as inflation signaling the need for a rate hike or growth materially slows, Michael Wilson, chief US stock strategist wrote in a note to clients on Sunday.

In commodities, oil extended the previous session’s decline toward $80 a barrel amid a stronger greenback and a technical indicator suggesting the recent rally has gone too far. Gold steadied amid a re-think of the Fed’s rate cut outlook.

Key events this week:

• BOJ issues Summary of Opinions from June policy meeting, Monday

• Singapore CPI, Monday

• Taiwan jobless rate, industrial production, Monday

• Argentina unemployment, GDP, Monday

• Bank of Canada Governor Tiff Macklem speaks, Monday

• San Francisco Fed President Mary Daly speaks, Monday

• Fed Governor Christopher Waller speaks, Monday

• Australia consumer confidence, Tuesday

• Malaysia CPI, Tuesday

• Canada CPI, Tuesday

• Spain GDP, Tuesday

• US Conference Board consumer confidence, Tuesday

• Fed Governor Lisa Cook, Fed Governor Michelle Bowman speaks, Tuesday

• Australia CPI, Wednesday

• UK Prime Minister Rishi Sunak and Labour leader Keir Starmer debate, Wednesday

• Bank of Finland’s 3rd International Monetary Policy Conference begins, Wednesday

• RBA Deputy Governor Andrew Hauser speaks, Thursday

• Japan retail sales, Thursday

• Philippines rate decision, Thursday

• China industrial profits, Thursday

• Eurozone economic confidence, consumer confidence, Thursday

• BOE releases financial stability report, Thursday

• Sweden rate decision, Thursday

• Turkey rate decision, Thursday

• US durable goods, initial jobless claims, GDP, wholesale inventories, Thursday

• Mexico unemployment, trade, rate decision, Thursday

• Japan Tokyo CPI, unemployment, industrial production, Friday

• UK GDP, Friday

• France CPI, Friday

• Italy CPI, Friday

• Spain CPI, Friday

• Czech Republic GDP, Friday

• US PCE inflation, spending and income, University of Michigan consumer sentiment, Friday

• Richmond Fed President Thomas Barkin speaks, Friday

• Brazil unemployment, Friday

• Chile industrial production, unemployment, Friday

• Colombia unemployment, rate decision, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.2% as of 10:40 a.m. Tokyo time

• Nikkei 225 futures (OSE) were little changed

• Japan’s Topix rose 0.2%

• Australia’s S&P/ASX 200 fell 0.6%

• Hong Kong’s Hang Seng fell 0.6%

• The Shanghai Composite fell 0.4%

• Euro Stoxx 50 futures fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0689

• The Japanese yen was little changed at 159.68 per dollar

• The offshore yuan was little changed at 7.2887 per dollar

• The Australian dollar fell 0.1% to $0.6633

Cryptocurrencies

• Bitcoin fell 0.8% to $63,205.34

• Ether fell 0.4% to $3,420.35

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.25%

• Japan’s 10-year yield advanced two basis points to 0.990%

• Australia’s 10-year yield declined one basis point to 4.20%

Commodities

• West Texas Intermediate crude fell 0.3% to $80.46 a barrel

• Spot gold rose 0.1% to $2,324.68 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Aya Wagatsuma.

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