Morning Bid: Fed QT taper calms the horses, yen pops again
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[May 02, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
Anxious bond traders seem to have taken solace from the Federal
Reserve's surprisingly sharp brake on its "quantitative tightening"
process on Wednesday, while the yen capitalized on an easier dollar
after what seemed like the second bout of Japanese intervention this
week.
It may be thin gruel after a predictably hawkish Fed meeting that showed
little inclination toward interest rate cuts any time soon, but the
widely predicted Fed slowing of its balance sheet runoff was bigger than
many had bargained for and may nod to its sensitivity to bond market
angst and banking liquidity.
The U.S. central bank said it would scale back the pace of QT starting
on June 1, allowing only $25 billion in Treasury bonds to run off each
month versus the current $60 billion.
Helped additionally by Fed chair Jerome Powell batting away any idea
that further rate rises were on the table again, Treasury yields have
fallen back from the year's highs.
Futures markets nudged up the full-year Fed easing expectations to 35
basis points, though a first cut is still not fully priced until after
November's election.
Two-year Treasury yields recoiled from 5% - hovering just under 4.94% on
Thursday - and 10-year yields slipped to 4.60%.
Grappling with a heavy earnings season and some outsize price drops in
artificial intelligence stocks such as Super Micro Computers and AMD,
Wall Street stock indexes have been in two minds over the Fed reaction -
ending in the red on Wednesday but with futures back up smartly ahead of
the bell.
Apple tops another blizzard of corporate updates on Thursday.
The dollar took its cue directly from Treasury yields and the DXY index
turned tail from six-month highs.
And just as it started to fall back, the Bank of Japan appears to have
struck for the second time this week - sparking a peak-to-trough drop of
almost 5 yen, or 3%, on Wednesday.
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Much like Monday's $35 billion sale of dollars for yen, there was no
immediate confirmation of the action - but traders noted the change of
tactics from the authorities in selling the dollar as it was already
softening rather than stalling its rise at the 34-year high just above
160 yen earlier this week.
Bank of Japan data suggested on Thursday indicated that they spent
between $21 billion and $24 billion on Wednesday to pull the yen low -
bringing the total for the week close to $60 billion, the amount it
spent during a three-day salvo in late 2022.
But despite the action, the yen continues to widen on the huge
U.S.-Japan interest rate gap and dollar/yen was back above 155 on
Thursday - suggesting Tokyo may be in for a protracted battle that could
quickly use up its estimated $155 billion of dollar deposits.
Atsushi Takeuchi, who headed the Bank of Japan's foreign exchange
division during intervention rounds in 2010-2012, said Japan would
likely keep intervening to prop up the yen until the risk of speculators
triggering a free fall in the currency has been eliminated.
LABOR MARKET
Back on Wall St, attention will quickly switch from the Fed meeting to
the labor market and the April payrolls report on Friday.
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![](../images/050224PIX/busine60.jpg)
A trader works inside a booth, as screens display a news conference
by Federal Reserve Board Chairman Jerome Powell following the Fed
rate announcement, on the floor of the New York Stock Exchange
(NYSE) in New York City, U.S., May 1, 2024. REUTERS/Stefan Jeremiah
![](http://archives.lincolndailynews.com/2024/May/02/images/ads/current/graue_lda_preowned_042224.jpg)
And on that score, there were some indications on Wednesday that the
jobs market is cooling a bit.
Although private sector payroll creation appeared to stay strong
last month, other data showed U.S. job openings fell to a three-year
low in March and the number of people quitting their jobs declined -
signs of easing labor market conditions that over time could aid the
Fed's fight against inflation.
An ongoing retreat in oil prices back below $80 per barrel will also
help take the edge off bond market nerves.
But global forecasters remain in little doubt about the fundamental
strength of the U.S. economy.
Showing some significant divergence with other major economies, the
OECD's last world outlook said lingering sluggishness in Europe and
Japan was being offset by the United States, whose growth forecast
was hiked to 2.6% this year from a previous estimate of 2.1%.
In single stock moves in Europe, Danish drugmaker Novo Nordisk lost
2.5% despite a first-quarter beat and outlook hike, with analysts
pointing to slower underlying growth and weakness in obesity drug
sales.
But Standard Chartered jumped 7% to a six-month high as the emerging
markets-focused lender posted a 5.5% rise in first-quarter pretax
profit that beat estimates.
Key diary items that may provide direction to U.S. markets later on
Thursday:
* U.S. Q1 productivity and unit labor costs, weekly jobless claims,
March international trade balance, March factory goods orders
* U.S. corporate earnings: Apple, Amgen, Conocophillips, Expedia,
Moderna, Consolidated Edison, Moody's, Ingersoll Rand, Motorola
Solutions, Southern, Intercontinental Exchange, Linde, Regeneron
Pharmaceuticals, Cigna, Zimmer Biomet, Dominion Energy, Alliant
Energy, Coterra Energy, Stanley Black & Decker, Xylem, Howmet
Aerospace, Vulcan Materials, Pioneer Natural Resources, WestRock,
Borgwarner, Camden Property, Federal Realty, Digital Realty, Kimco
Realty, IQVIA, Teleflex, EOG, Fortinet, Ameren, DaVita,
Parker-Hannifin, Pinnacle West, Cummins, Regency Centers, Live
Nation, AES, Hologic, Illumina, AMETEK etc
* Bank of Canada governor Tiff Macklem speaks, European Central Bank
chief economist Philip Lane speaks
* OECD Ministerial Council Meeting in Paris, Economic Outlook
released
* French President Emmanuel Macron meets Japan's Prime Minister
Fumio Kishida in Paris
* U.S. Treasury sells 4-week bills
(By Mike Dolan; Editing by Alison Williams mike.dolan@thomsonreuters.com)
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