Shares rise, dollar drops vs yen after BOJ hint of exit from negative rates

[September 11, 2023]  By Amanda Cooper

LONDON (Reuters) -Global shares edged up on Monday thanks in part to a burst of risk appetite, with the yen jumping by the most against the dollar in two months after the head of the Bank of Japan hinted at an eventual shift away from negative interest rates.

Signs of stabilization in the Chinese economy pushed up the price of copper and underpinned the oil price above the crucial $90-a-barrel level.

The yen surged after BOJ Governor Kazuo Ueda said the central bank could end its policy of negative interest rates when the achievement of its 2% inflation target is in sight.

The dollar dropped by as much as 1.3% to 145.91 yen but is still within sight of last week's high of 147.87 - a level at which traders were preparing for the BOJ to possibly intervene outright in the markets to prop up the currency.

The dollar has benefited in recent weeks from a growing sense of caution among investors towards China and Europe, both showing worrying signs of slowdown in contrast with the U.S. economy, which many believe is heading for a soft landing.

Global shares, as reflected by the MSCI All-World index, rose 0.2%, supported by a bounce in stocks in Europe, where the STOXX 600 gained 0.5%. Last week, the STOXX posted its longest stretch of losses in 5-1/2 years.

This week holds a number of major risk events, such as the European Central Bank policy meeting and a key reading of U.S. monthly inflation, which will likely temper a broader rally, according to City Index strategist Fiona Cincotta.

"After such a heavy sell-off last week, there is a bit of a recovery, or a pause in the sell-off, now, and given that it's such a big week as far as the ECB is concerned and as far as inflation is concerned, investors are in a cautious mood, which is going to prevent stocks from going too much higher," she said.

INFLATION IN SIGHT

U.S. inflation data is due on Wednesday. Economists polled by Reuters expect consumer prices to have risen by 3.6% from last year, up from July's 3.2% reading.

The core rate, which excludes food and energy prices and is more of a focus for the Fed, is expected to have slowed to an annual rate of 4.3% from 4.7% in July.

A man walks past an electronic board showing Japan's Nikkei average and stock prices outside a brokerage, in Tokyo, Japan, March 17, 2023. REUTERS/Androniki Christodoulou/File Photo

Investors are pricing in a 93% probability the Fed will leave rates unchanged when it convenes next week, but the outcome of the November meeting is less clear - money markets show the split is 50/50 as to whether there is another hike or not.

The yield on the benchmark 10-year Treasury note rose 3 basis points to 4.282%, while that on the two-year note was flat at 4.98%.

U.S. stock futures were up between 0.3-0.5%.

On the markets in Asia, Chinese blue-chip stocks ended the day up 0.7% after data showed deflation pressures were easing, which suggested the economy might be returning to a more stable footing.

A separate report showed new lending almost quadrupled in August, a sign of the central bank's efforts to shore up growth.

"In the near term investors are cautious towards China but we are quite encouraged that the policies have turned from more piecemeal to more targeted in the past few weeks, especially with property," said Marcella Chow, JPMorgan Asset Management market strategist.

Copper futures rose 1.5% on Monday to $8,367 a tonne, while Brent crude futures dipped 0.35% on the day but held above $90 a barrel, near the year's highs.

The euro was up 0.3% on the day at $1.0709, having lost 1.09% in a month as expectations have faded for the ECB to raise rates again this year in light of a sharp slowdown in business activity.

The ECB meets on Thursday to set interest rates and markets have all but priced out any chance of a hike.

(Additional reporting by Scott Murdoch in Sydney; editing by Edwina Gibbs, Simon Cameron-Moore and Mark Heinrich)

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