Asian Stocks Retreat; Yen Falls as BOJ Stands Pat: Collapsing Markets

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(Bloomberg) — Asian stocks fell on Thursday after the Federal Reserve predicted it would cut interest rates next year. The yen fell as the Bank of Japan refused to raise borrowing costs.

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Equity ratings in Japan, Australia, South Korea and China fell, helping to drag the regional equity gauge down about 1.6%. The loss reflected the decline in US stocks in the previous session, with the S&P 500 suffering its biggest loss since 2001 on the day of the Fed’s decision.

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The yen weakened past the key 155 level against the dollar following the BOJ’s decision, with traders awaiting clues on the rate’s outlook from Governor Kazuo Ueda’s news conference later Thursday. The move comes after the Fed cut rates by 25 basis points on Wednesday as expected, with the median policymaker now seeing a half-percentage point cut next year, half of what was expected in September.

“He is expected to give strong advice to hike in January,” said Alvin Tan, head of Asia FX Strategy at Royal Bank of Canada in Singapore, referring to Ueda. If he doesn’t commit, “then the USD/JPY upside has a lot of legs.”

The 155 level of the dollar-yen pair is closely watched by strategists, who see a slide in this mark as a possible trigger for verbal intervention by the Japanese authorities, and add pressure on the BOJ to raise rates.

In the broader foreign exchange market, the prospect of several US rate cuts supported the dollar and sent Asian currencies lower. The Indian rupee fell sharply while the South Korean won fell to its weakest level in more than 15 years. Treasury yields were little changed after rising across the curve in the previous session.

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Back in the US, the last time the S&P 500 saw a big loss on the day of a Fed decision was on September 17, 2001, when the index fell nearly 5%. It fell 12% on March 16, 2020, the day after the Fed’s emergency weekend meeting amid the pandemic.

Fed Chairman Jerome Powell said the central bank will be very cautious as it considers further adjustments to the policy rate, noting that the Fed is committed to achieving its 2% inflation target. “We need to see progress in terms of inflation,” he said. “We moved fast to get here but we are moving forward slowly.”

Fed Outlook

Whitney Watson of Goldman Sachs Asset Management expects the Fed to skip rate cuts in January before resuming its tapering approach in March.

“While the Fed chose to end the year with a third consecutive rate cut, its New Year’s resolution appears to be a gradual increase,” said Watson, global head and chief investment officer of fixed income and liquidity. solutions to the company.

In China, authorities increased support for the currency at its daily reference rate after the Fed’s warning of future rate cuts sent the onshore yuan to a one-year low.

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Contemporary Amperex Technology Co., the world’s leading maker of electric vehicle batteries, is considering a second listing in Hong Kong that could raise at least $5 billion, according to people familiar with the matter. Shares of Asian memory makers and their suppliers fell after Micron Technology gave a disappointing earnings forecast.

In the US, President-elect Donald Trump has said he opposes the proposed funding bill and threatened to fire fellow Republicans if they pass legislation that doesn’t meet his demands, raising the possibility of a government shutdown later this week. House Majority Leader Steve Scalise said the funding freeze passed Tuesday is dead.

Wednesday’s tapering by the Fed preceded announcements by central banks from around the world. Price decisions are expected on Thursday in the Philippines, Taiwan, the UK, Norway, Sweden and Mexico. China’s one-year Medium-Term Borrowing Facility rate could be announced anytime until Dec. 24.

In commodities, oil fell as expectations of a Fed rate cut boosted the dollar. Gold rallied after Wednesday’s sharp decline and Bitcoin fell below $100,000 as part of a broader pullback in speculative investments amid the outlook for US policy.

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Important events this week:

• Japan rate decision, Thursday
• UK BOE rate decision
• US updated GDP, Thursday
• Japan CPI, Friday
• Prime loan rates in China, Friday
• Eurozone consumer confidence, Friday
• US personal income, spending and PCE inflation, Friday

Some of the main steps in the market:

Shares

• S&P 500 futures were up 0.2% as of 11:26 a.m. Tokyo time
• Nikkei 225 futures (OSE) down 1.3%
• Japan’s Topix fell 0.5%
• Australia’s S&P/ASX 200 fell 1.8%
• Hong Kong’s Hang Seng fell 1%
• The Shanghai Composite fell 0.7%
• Euro Stoxx 50 futures down 1.4%
• Nasdaq 100 futures were little changed

Funds

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.3% to $1.0379
• The Japanese yen rose 0.2% to 154.50 per dollar
• The offshore yuan fell 0.2% to 7.3096 per dollar
• The Australian dollar rose 0.2% to $0.6228

Cryptocurrencies

• Bitcoin fell 1.7% to $99,196.29
• Ether fell 3.1% to $3,574.97

Bonds

• The yield on 10-year Treasuries fell one basis point to 4.50%
• Australia’s 10-year yield advanced nine basis points to 4.37%

Goods

• West Texas Intermediate crude fell 0.6% to $70.19 a barrel
• Local gold rose 1% to $2,610.81 an ounce

This story was produced with the help of Bloomberg Automation.

—Courtesy of Richard Henderson and Mia Glass.

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