LDN - Business

Stocks soothed by Fed signals, yen swings again

[May 02, 2024] By Marc Jones

LONDON (Reuters) - A sense of relief percolated through world markets on Thursday after the Federal Reserve shot down talk of pivoting back to interest rate hikes, while the yen backtracked after another suspected bout of FX intervention.

Europe's big bourses made a sluggish start [.EU] as much of the region returned from a day off, but after a choppy few weeks dealers were just happy the Fed hadn't inflicted any major damage, and that borrowing costs were ticking down again. [GVD/EUR]

The Fed's rate setters unanimously decided to leave U.S. rates in the 5.25% to 5.5% range they have been in since July but it was the post meeting press conference that proved most interesting.

While Fed chair Jerome Powell indicated that stubbornly high inflation would see a long-expected U.S. rate cut pushed back, he refused to entertain talk that rates might actually need to go up again.

BCA Research bond market strategist Ryan Swift said the bottom line was that barring any surprise rate hikes, "October’s cyclical peak in (U.S. Treasury) yields will hold" and "eventually break out to the downside ... but only once the labor market data meaningfully deteriorate".

The spotlight was still on the Japanese yen's precarious level in the currency markets too.

Shortly after Powell had finished telling reporters the Fed may have to leave rates elevated, the Japanese currency surged against the dollar in its second suspected intervention-fuelled leap of the week.

It traded as strong as 153 to the dollar before sliding back to around 156 in Asia and then moved to around 155.5 in Europe.

Kyle Rodda, senior financial market analyst at Capital.com in Melbourne, said it had been another "sneak attack" by Japan's authorities "looking to punish speculators and send a warning about shorting the yen".

"It caught markets off guard because, obviously, it happened in the U.S. session and seemed to be timed with the FOMC (Fed meeting and press conference) to take advantage of a weaker dollar".

The main dollar index, which measures the currency against the yen, euro, sterling and three other major peers, was down 0.1% in Europe, following a 0.6% retreat on Wednesday from near six-month highs.

Europe's dealers had nudged the euro up 0.1% in the other direction to $1.0727 despite data showing a deepening downturn in euro zone manufacturing activity.

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A worker shelters from the rain under a Union Flag umbrella as he passes the London Stock Exchange in London, Britain, October 1, 2008. REUTERS/Toby Melville/File Photo

There was some brighter news in the German data and from Paris where the OECD upgraded its global growth forecast to 3.1% for this year and 3.2% next year, although that was largely thanks to stronger-looking U.S. and Chinese economies.

APPLE EYED

Wall Street's S&P 500 futures were up 0.6%, pointing to it recouping the ground it lost late on Wednesday. [.N]

All the focus there will be on Apple's results, with analysts bracing for a big drop in sales and waiting to hear how the company plans to embed AI into its iPhones.

Oil was licking its wounds after a heavy fall triggered by a surprise jump in U.S. stockpiles. Brent crude futures were up roughly 80 cents a barrel to $84.18 in Europe, after touching a seven-week low of $83.29. U.S. crude was at $79.52 a barrel [O/R]

The Fed's signals were still being digested by bond markets, which were also starting to refocus on key U.S. non-farm payrolls data on Friday.

Ten-year Treasury yields rose 2.3 basis points (bps) to 4.611% in Tokyo and Europe, having fallen 9.3 bps in New York on Thursday.[US/] Two-year yields, which fell more than 10 bps in New York overnight, rose 1 bp to 4.9497%.

After pricing in as many as six rate cuts for 2024 earlier this year, markets now price only one, in December.

Outside of oil, trade in other commodities was subdued by holidays in China, where markets are closed for the rest of the week. Gold rose overnight and was last holding at $2,314.44. [GOL/]

(Additional reporting by Tom Westbrook in Sydney; Editing by Mark Potter)

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