LDN - Business

Stocks face worst month since September, yen swings after BoJ

[April 26, 2024] By Naomi Rovnick and Rae Wee

LONDON/SINGAPORE (Reuters) -Global stocks were teetering on Friday towards their worst month since September, although futures markets predicted strong tech earnings would spark a Wall Street relief rally later in the day that would help traders recoup some losses.

Japan's yen was volatile, hitting a fresh 34-year low after the Bank of Japan (BOJ) kept monetary policy loose at its latest policy meeting, then rebounding. Traders are speculating that Japanese authorities might intervene to support the currency.

MSCI's broad index of global stocks was down 3.3% for the month, although 0.17% higher on the day.

World equities have slid this month as hopes of rapid Fed rate cuts this year drained from the market following a series of hotter than expected U.S. inflation readings.

Still, contracts that wager on Wall Street's tech-heavy Nasdaq 100 were more than 1% higher, while those on the benchmark S&P 500 index rose 0.8%, after earnings from Alphabet and Microsoft beat estimates.

These moves came ahead of a fresh reading of U.S. core personal consumption expenditures, the Fed's preferred inflation measure, that could sway rate cut hopes and strengthen the dollar.

In a volatile session on Friday, the yen, weakened as far as 156.8 per dollar after the Bank of Japan kept interest rates around zero at its policy meeting that concluded Friday despite forecasting inflation of around 2% for three years.

The currency then jumped suddenly to 155 per dollar before retreating, although it was not immediately clear what caused the move.

Finance Minister Shunichi Suzuki said on Friday that Japan was concerned about the negative effects of a weak yen, adding to a chorus of aggressive jawboning from authorities in recent weeks, though it has had little effect.

Japan intervened in the currency market three times in 2022, selling the dollar to buy yen, first in September and again in October as the yen hit 152 per dollar.

DOLLAR FIRMNESS

The U.S. currency has strengthened against peers as traders now expect the Fed to lower its main funds rate, currently at a 23-year high of 5.25% to 5.5%, by just 36 basis points this year, with some fearing a further hike.

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Passersby walk in front of an electric screen displaying Japan's Nikkei share average outside a brokerage in Tokyo, Japan March 21, 2024. REUTERS/Issei Kato/File Photo

With the U.S. housing market, labor market and consumer spending strong, inflation could spike again instead of falling in a straight line towards the Fed's average 2% target, said Frederic Leroux, head of cross asset at fund manager Carmignac.

The central bank is "not willing to trigger a deep recession, so we will have more inflation but potentially also more growth," he said.

The two-year Treasury yield, which reflects short term interest rate expectations, hovered near 5% on Friday. The benchmark 10-year yield rose 2 bps to 4.71%, almost 50 bps higher since late March. Bond yields rise as prices of the debt instruments fall.

In Europe on Friday, the benchmark Stoxx 600 share index rose 0.6%, still heading for a 1.4% monthly drop.

European government debt investors have also had a disappointing month, despite euro zone inflation having dropped towards the European Central Bank's 2% target.

The ECB is expected to cut its deposit rate from a record 4% in June but analysts have queried how far it can diverge from U.S. monetary policy without weakening the euro significantly.

The two-year German bond yield, which moves in line with short-term rate expectations, rose 4 bps on Friday to just over 3%.

Germany's 10-year bund Friday 2.605% after rising 31 bps in April so far.

The euro traded at $1.073, 0.5% lower against the dollar so far this month.

Elsewhere, Asian stocks outside Japan added 0.8%, Tokyo's Topix rose 0.9% and Brent crude oil gaind 0.5% to $89.47 a barrel.

(Editing by Gerry Doyle and Gareth Jones)

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