Dollar Drops, Stocks Rise as Inflection Signs Grow: Markets Wrap

(Bloomberg) — The dollar weakened and stocks advanced in Asia on mounting speculation the Federal Reserve is nearing the end of its tightening cycle.

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The US currency weakened against all its Group-of-10 peers after dovish comments from Federal Reserve officials last week bolstered bets the central bank is done with its interest-rate hikes. An index of emerging-market currencies climbed to a nine-month high, while a gauge of Asian equities headed for its highest close in two months.

A number of European Central Bank officials are set to speak Monday and may provide insights into their own rate-hike cycle.

Traders are currently pricing in about a 30% chance of a first Fed rate cut in March after Vice Chair for Supervision Michael Barr said Friday officials are likely at or near the end of their tightening campaign. Still, San Francisco Fed President Mary Daly said policymakers aren’t certain inflation is on a path to their 2% target.

“The dovish Fed narrative remains in place,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. “There is likely to be ongoing downward pressure on US yields and the dollar.”

Still, “does one month of somewhat favorable inflation data really warrant such a massive move in rates? We think not and yet here we are. We must respect this move while wholeheartedly disagreeing with it,” he wrote in a research note.

Treasury Sale

Treasuries edged lower in Asia before a US 20-year auction that will help gauge whether investors are confident 2023’s selloff is over once and for all. The Treasury market is poised to post a monthly gain in November, ending a six-month losing streak. Australian and New Zealand bonds also retreated.

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European equity futures were little changed Monday and their US peers ticked lower after the S&P 500 climbed above 4,500 on Friday to cap its third straight weekly gains.

Yuan Rallies

The offshore yuan strengthened after the People’s Bank of China boosted its daily reference rate for the currency to the strongest since August. The nation’s commercial lenders on Monday kept their benchmark lending rates unchanged, in line with the central bank’s decision this month to maintain policy rates in favor of other means to support stimulus spending.

“The yuan is likely past the turning point versus the dollar in line with most of developed market and Asian peers.” said Fiona Lim, a senior foreign-exchange analyst at Malayan Banking Bhd. in Singapore.

Japan’s Nikkei 225 Stock Average briefly surpassed its June intraday peak to reach the highest level since 1990, extending its gains this year to about 28%. The index has been boosted by recent yen weakness, solid company earnings, and corporate governance reforms.

Oil rose as investors looked ahead to an OPEC+ meeting on supply that will shape market balances into 2024.

Investors are also watching for any impact from the deepening rout at OpenAI. OpenAI’s interim Chief Executive Officer Mira Murati was said to plan to re-hire her ousted predecessor Sam Altman, but at the same time the company’s board decided to tap former Twitch chief Emmett Shear as CEO.

In Argentina, libertarian candidate Javier Milei defeated Economy Minister Sergio Massa to win Sunday’s presidential runoff. There was no immediate reaction in the markets due to a holiday.

Chinese smart-phone giant Xiaomi Corp. will announce earnings Monday while Nvidia Corp. releases its results Tuesday. Trading is likely to become more muted toward the end of the week with the US Thanksgiving Holiday on Thursday.

Key events this week:

• European Central Bank governing council members Pablo Hernandez de Cos, Francois Villeroy de Galhau, Boris Vujcic speak at separate events, Monday

• Bank of England Governor Andrew Bailey speaks, Monday

• US Conference Board leading index, Monday

• European Central Bank President Christine Lagarde speaks, Tuesday

• Canada CPI, Tuesday

• Federal Reserve Nov. policy meeting minutes, Tuesday

• Nvidia earnings, Tuesday

• Eurozone consumer confidence, Wednesday

• US initial jobless claims, University of Michigan consumer sentiment, durable goods, Wednesday

• Eurozone PMIs, Thursday

• UK S&P Global/CIPS Manufacturing PMI, Thursday

• European Central Bank publishes account of Oct. policy meeting, Thursday

• Thanksgiving holiday in the US, Thursday

• Japan CPI, Friday

• Germany GDP, Friday

• US manufacturing PMI, Friday

• Black Friday sales begin, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.2% as of 6:28 a.m. London time. The S&P 500 rose 0.1% on Friday

• Nasdaq 100 futures fell 0.3%. The Nasdaq 100 was little changed

• Euro Stoxx 50 futures were unchanged

• Japan’s Topix index fell 0.8%

• Hong Kong’s Hang Seng Index rose 1.5%

• China’s Shanghai Composite Index rose 0.4%

• Australia’s S&P/ASX 200 Index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro was little changed at $1.0917

• The Japanese yen rose 0.3% to 149.17 per dollar

• The offshore yuan rose 0.4% to 7.1866 per dollar

• The Australian dollar rose 0.5% to $0.6548

• The British pound rose 0.1% to $1.2478

Cryptocurrencies

• Bitcoin rose 0.3% to $37,133.38

• Ether rose 0.9% to $2,001.8

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.45%

• Japan’s 10-year yield declined one basis point to 0.740%

• Australia’s 10-year yield advanced four basis points to 4.51%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess and Qizi Sun.

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