Stocks hemmed in by rate risks; yuan wobbles Tom Westbrook (Reuters) Singapore

Tue, March 26, 2024

BUSINESS MARKETS Stocks hemmed in by rate risks; yuan wobbles Tom

Westbrook (Reuters) Singapore Tue, March 26, 2024 Banknotes of Chinese yuan and US
dollar are shown in this illustration picture taken on Sept. 29, 2022. (Reuters/Florence Lo) A
sian equities climbed on Tuesday but could not break this month’s highs as mixed messages
from US Federal Reserve policymakers left doubts hanging over the timing of interest rate
cuts.
The risk of Japan intervening to prevent further falls in the yen put a little pressure on
the dollar, however it rose against the yuan on speculation that China may tolerate a weaker
currency.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6 percent, with
gains for South Korean chipmakers SK Hynix and Samsung Electronics leading the Kospi up
1.2 percent.
Japan’s rocketing Nikkei was steady, as was the yen at 151.31 per dollar.
Overnight, Chicago Fed President Austan Goolsbee said he had pencilled in three rate
cuts this year, while Fed Governor Lisa Cook urged caution and Atlanta Fed President
Raphael Bostic re-iterated Friday remarks trimming his expectations to one cut.
The diversity of views throws a few wildcards into the policy outlook while markets wait on
the next US inflation indicators due when many markets will be closed for Good Friday.
“Comments by FOMC participants suggest to us that four voters – Bostic, Bowman,
Mester, and Barkin – see zero, one or two cuts this year,” said Standard Chartered strategist
Steve Englander.
“We still think [chairman Jerome] Powell has eight votes for easing, but he probably
does not want an 8-4 vote on the first cut of the cycle. Rather, he may hope that good
inflation outcomes will allow him to swing a couple of votes into the cutting camp in the
coming months.”
Interest rate futures price about three Fed rate cuts this year and about a three-in-four chance
of the first cut in June.
US two-year yields, which track short-term interest rate expectations, rose in New York trade
overnight then fell 4.5 basis points in the Asia morning to 4.58 percent.
S&P 500 futures rose 0.1 percent and the cash index closed 0.3 percent lower overnight.
In foreign exchange, Monday’s rhetoric from Japan’s top currency diplomat, Masato
Kanda, kept the yen steady as traders weigh the risk of Japan buying heavily. Kanda said the
yen’s recent slide was “strange” and “speculative”.
 The Bank of Japan (BOJ) lifted interest rates last week but the yen has fallen near to three-
decade lows on the dollar. “Much like in 2016, when the BOJ cut rates to negative and
[dollar/yen] went down, this month’s BOJ decision to exit negative rates is a nothingburger
and a red herring for [dollar/yen],” said Spectra Markets President Brent Donnelly.
The pair continues to follow some combination of US yields and Nikkei, with yields the
primary driver.”
China’s yuan opened steady after a stronger-than-expected fixing of its trading band, but
selling pressure soon drove it to the weak side of its 200-day moving average at 7.2165 per
dollar.
Markets were unsettled by a sharp drop in the yuan on Friday, after months of tight trading,
and some speculate China is loosening its grip on the currency to allow it to fall.
“Whether this reflects a shift in FX policy remains to be seen but accommodative
monetary conditions are necessary in the face of growth headwinds,” said BofA Securities’
strategist Adarsh Sinha.
“If [yuan] depreciation sustains and coincides with a weaker credit impulse, Asia FX is
vulnerable.”
Later on Tuesday, the Reserve Bank of New Zealand’s chief economist is due to speak and
US manufacturing, services and consumer confidence figures are due. US core PCE data is
due on Friday.
Gold and oil prices were broadly steady in commodities trade, with spot gold at $2,169 an
ounce and Brent crude futures up 24 cents a barrel to $86.99. Bitcoin hovered just above
$70,000 after rising sharply on Monday.