Marketmind: Yen pops on Leap Day as PCE inflation looms

[February 29, 2024]  A look at the day ahead in U.S. and global markets from Mike Dolan

February's extra 'leap year' day saw the yen jump to two-week highs on hawkish Bank of Japan noises and bitcoin surge again to within 10% of new records - but the big hurdle for U.S. markets is the critical PCE inflation readout later today.

The yen rose to its best levels since mid-February and the Nikkei ended in the red again after BOJ board member Hajime Takata said the central bank must consider overhauling its ultra-loose policy, including an exit from negative interest rates and bond yield caps.

Vice finance minister Masato Kanda also told G20 counterparts meeting in Brazil that Japan would act to prevent excessive weakness of the yen.

Bitcoin, meantime, headed for its biggest monthly gain in more than three years - briefly topping $63,000 overnight - as money fills newly-listed bitcoin funds and traders speculated ahead of April's 'halving' event.

But the cat-and-mouse game over the timing of BOJ 'normalization' comes in tandem with second-guessing over the timing of the first rate cuts from the Federal Reserve and European Central Bank.

Thursday's release of Fed's favored PCE measure of inflation for January remains pivotal to its decision making.

Although the Fed will see February consumer price updates before it meets again next month, today's release is the last PCE readout before the March 20 gathering.

Headline PCE inflation is expected to have fallen again to just 2.4% versus 2.6% - with 'core' rates down to 2.8% and both measures clocking their lowest in almost 3 years. But an expected uptick in monthly price rises may keep Fedsters wary.

While a relentless message of 'patience' from Fed officials over recent weeks has pushed futures markets into only fully pricing a first cut by July, the latest stream of speeches seem keen not to take eventual easing completely off the table.

New York Fed boss John Williams said on Wednesday that even though there's some distance to cover in achieving the 2% inflation target, the door is opening to rate cuts this year.

Subdued Wall St stocks ended in the red on Wednesday and futures were down again ahead of Thursday's bell.

And there was no 'leap day' for cloud data firm Snowflake, whose shares plunged 22% overnight after an earnings miss, warning on consumer demand ahead and the appointment of a new chief executive.

U.S. Treasury yields ticked higher into the PCE release and as Democratic and Republican leaders in Congress announced a deal for advancing the 12 annual bills that fund an array of federal programs and which could avert government shutdowns as soon as Saturday.

With dollar/yen leading the way, the dollar index fell back.

Examples of Japanese yen banknotes are displayed at a factory of the National Printing Bureau producing Bank of Japan notes at a media event about a new series of banknotes scheduled to be introduced in 2024, in Tokyo, Japan, November 21, 2022. REUTERS/Kim Kyung-Hoon/File Photo

November's election is never far from investors' minds at this stage of the year.

The U.S. Supreme Court on Wednesday agreed to decide Donald Trump's claim of immunity from prosecution for trying to overturn his 2020 election loss, giving him a boost as he tries to delay criminal prosecutions while running to regain the presidency.

The Supreme Court set the case for oral argument during the week of April 22.

Elsewhere, mainland Chinese shares jumped more than 1% as regulators said they would strengthen supervision of derivatives and announced punishment for a hedge fund for excessive, high-frequency trading in share index futures.

With northbound inflows to stocks catching the eye, there's also some tempering on the negativity as investors await the outcome of next week National People's Congress for a series of economic targets and policy priorities for this year.

In Europe, data showed inflation fell in six economically important German states in February - encouraging hopes that German inflation is continuing on its downward trajectory. Spanish and French inflation slowed too, albeit by less than forecast in the latter.

Traders were also parsing signals from ECB officials about changes to how it manages short-term interest rate management as it runs down its bloated balance sheet.

Shares in London-listed hedge fund firm Man Group rallied 3.6% to their highest since mid-March 2023 after it reported assets under management rose to a record $167.5 billion last year.

Key diary items that may provide direction to U.S. markets later on Thursday:

* U.S. Jan personal income & consumption, PCE inflation reading, Dallas Fed core PCE cuts, weekly jobless claims, Feb Chicago PMI business survey, Jan pending home sales; Canada Q4 GDP update

* New York Federal Reserve President John Williams, Atlanta Fed President Raphael Bostic, Cleveland Fed chief Loretta Mester, Chicago Fed chief Austan Goolsbee Bank of England

* U.S. Treasury auctions 4-week bills

* G20 finance ministers and central bankers meeting in Sao Paulo, G7 meets on sidelines

* U.S. corp earnings: Best Buy, Hewlett Packard, Hormel Foods, Autodesk, Evergy, NetApp, Zscaler, NetEase, Cooper, Celcius, Bath & Body Works, etc

(By Mike Dolan, editing by Christina Fincher, [e-mail])

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