(Bloomberg) — The dollar fell to a five-month low and stocks rose on Monday on hopes of lower U.S. interest rates.
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Asian stock indexes rose for their best week in more than a year, led by Chinese and Hong Kong technology shares, while the Asian dollar index rose 0.7% and the yen surged. U.S. stocks fell and European stocks were flat.
Monday’s moves underscore how the prospect of lower borrowing costs is boosting investor sentiment.The big indicator this week is on Friday, when Federal Reserve Chairman Jerome Powell is expected to offer fresh insight into the direction of U.S. monetary policy at the central bank’s annual meeting in Wyoming.
“All eyes will be on Jackson Hole this week,” wrote Seth Carpenter, chief global economist at Morgan Stanley. “We expect Chairman Powell to speak about the Fed’s medium-term strategy,” saying slowing price pressures would allow officials to get inflation back on target while maintaining economic momentum.
Goldman Sachs late last week lowered its chances of a U.S. recession over the next 12 months to 20% from 25%, based on data on retail sales and jobless claims from the previous week. Goldman economists led by Jan Hatzius said in a client note on Saturday that if the August jobs report, due on Sept. 6, “is substantially stronger, we would likely lower our recession probability to 15%.”
Policy Conference
In Asia, investors will look to central bank meetings in Indonesia and South Korea this week for signs of policy easing, while Thailand’s interest rate decision will be crucial after reports its new prime minister may abandon a major stimulus package.
Strengthening Asian currencies, which are benefiting from improving risk sentiment, should encourage more Asian central banks to cut policy rates, Satoshi Kinoshita, global market strategist at Invesco Asset Management Japan, said on Friday.
“The market is expecting a brighter outlook for the Asian economies in the coming quarters,” he added. “This should encourage investors to allocate more capital to Asian stocks, particularly those in India, Indonesia and Malaysia.”
Bank of Japan Governor Ueda Kazuo is scheduled to appear before an ad hoc committee of the Diet this week to discuss the July 31 interest rate hike that has roiled global markets.Hedge funds have turned bullish on the Japanese yen for the first time since 2021, marking a sharp turnaround from the extremely negative sentiment seen among these traders in early July.
Big investors including Vanguard still expect Japan to raise interest rates further in the coming months, despite a sharp drop in market prices that are pricing in further tightening this year.The yen rose for a second time on Monday to trade around 145 yen to the dollar as Japanese stocks fell for the first time in six days.
The currency move will be a tailwind for European currencies, with the pound expected to benefit from a weaker dollar. Elsewhere in Europe, the Swedish Riksbank is expected to resume its monetary easing cycle in August, cutting its policy interest rate to 3.5% from 3.75%.
Oil prices fell for the fourth time in five trading days as traders kept a close eye on a 10-month U.S.-led effort to secure a ceasefire in the Middle East and an escalating Russia-Ukraine war. Gold prices hovered near record highs on hopes the Fed is close to cutting interest rates. Meanwhile, iron ore prices suffered their worst week since early June on concerns that a crisis in the steel industry spreading across China will reduce demand, although supplies from miners remain strong.
Here’s what’s coming up:
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The US Democratic National Convention will be held on Monday, August 22nd.
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US-South Korea joint military exercises begin Monday
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China loan prime rate, Canada and euro zone CPIs on Tuesday
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Sweden and Turkey interest rate decisions on Tuesday
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Indonesia and Thailand interest rate decisions Wednesday
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Minutes of the July 30-31 FOMC policy meeting, preliminary revision of the BLS annual employment report, Wednesday
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European Central Bank Governing Council member Fabio Panetta speaks in Rimini on Wednesday
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South Korea’s central bank interest rate decision on Thursday
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US Vice President Kamala Harris delivered her acceptance speech on Thursday, the final night of the Democratic National Convention.
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Bank of Mexico, National Bank of Poland release monetary policy minutes
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Malaysia’s CPI data, Mexico and Norway release GDP data
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Japan’s Consumer Price Index (CPI) data will be released and Bank of Japan Governor Kazuo Ueda is due to attend an extraordinary session of the Diet to discuss an interest rate hike on July 31. Friday
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Federal Reserve Chairman Jerome Powell and Bank of England Governor Andrew Bailey spoke Friday at the Kansas City Fed’s annual Jackson Hole Symposium.
Some of the key market developments:
stock
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S&P 500 futures were down 0.1% as of 3:11 p.m. Tokyo time.
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Nikkei 225 futures (OSE) fell 2.3%
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Japan’s TOPIX falls 1.4%
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Australia’s S&P/ASX 200 rose 0.1%
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Hong Kong’s Hang Seng rose 0.8%
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The Shanghai Composite Index rose 0.5%
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Euro Stoxx 50 futures unchanged
currency
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The Bloomberg Dollar Spot Index fell 0.4%.
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The euro rose 0.2% to $1.1050.
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The Japanese yen rose 1.5% to 145.37 yen to the dollar.
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The offshore yuan rose 0.4% to 7.1318 yuan per dollar.
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The Australian dollar rose 0.2% to $0.6681.
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The British pound rose 0.2% to $1.2964.
Cryptocurrency
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Bitcoin falls 2.4% to $58,410
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Ether fell 1.7% to $2,620.17.
Bonds
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The yield on the 10-year Treasury note fell 2 basis points to 3.87%.
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Japan’s 10-year government bond yield rose 1.5 basis points to 0.885%.
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Australia’s 10-year government bond yield fell 1 basis point to 3.92%.
merchandise
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West Texas Intermediate crude fell 0.5% to $76.23 a barrel.
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Spot gold fell 0.2% to $2,504.09 an ounce.
This story was produced with assistance from Bloomberg Automation.
–With assistance from Winnie Hsu and Abhishek Vishnoi.
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