Dollar absorbs suspected yen intervention, Chinese data mixed

SYDNEY, Oct 24 (Reuters) – The U.S. dollar held off another suspected outburst on Monday from Japanese intervention to push the yen higher, while for equities, a drop in Chinese markets dampened hopes of a possible slowing of interest rate increases in the United States.

The Dollar started off in a bullish mood with a rush to 149.70 Yen, before making a sudden drop to 145.28 within minutes. Still, speculators seemed fearless and took the dollar back to 148.90 in choppy trading.

The Financial Times reported that the Bank of Japan may have sold at least $30 billion on Friday in a bid to curb yen weakness, which has sharply raised the cost of imports, especially for resources.

Japanese authorities again declined to confirm whether they had intervened, but the price action strongly suggested they had. Read more

Any action to support the yen is at odds with the Bank of Japan’s super dovish policies and will intensify pressure for it to relinquish control of the yield curve at its policy meeting this week. Read more

The pound was also emotional, tipping the news that Boris Johnson had dropped out of the bid to become British Prime Minister.

This has increased the chances of former finance minister and market favorite candidate Rishi Sunak gaining power and reducing the political uncertainty hanging over the pound, at least for a little while. Read more

The news initially saw the pound jump almost a penny to $1.1402, but it couldn’t hold and last traded at $1.1307 as investors waited. more clarity on the competition.

Stocks mostly extended the rebound that began late in New York on Friday on talk that the Federal Reserve was debating when to slow the pace of increases and could signal a step back at its November meeting.

Markets are still pricing in a 75 basis point rise next month, but have cut bets on a corresponding move in December. The peak in rates also fell to around 4.87% from over 5.0% at the start of last week.

The ECB and the Bank of Canada ready to march

The sheer luck of a less aggressive Fed helped S&P 500 futures add 0.1% in Asia, while Nasdaq futures rose 0.2%. EUROSTOXX 50 futures firmed 0.7%, while FTSE futures edged up 0.1%.

Japan’s Nikkei (.N225) gained 0.6% and South Korea (.KS11) 0.9%, but MSCI’s broadest index of non-Japan Asia-Pacific stocks (.MIAPJ0000PUS) lost 1, 1% as Chinese stocks fell.

Chinese blue chips (.CSI300) fell 1.7% as the yuan continued to slide and Xi Jinping secured an unprecedented third term in office, choosing a top governing body made up of loyalists. Read more

Late data on gross domestic product (GDP) showed China’s economy grew 3.9% in the third quarter, beating forecasts of 3.5%, but retail sales disappointed with a meager rise of 2.5%. Read more

Markets are now awaiting US GDP figures due on Thursday and core inflation measures the following day. The economy is expected to have grown 2.1% annualized in the third quarter, while the Atlanta Fed’s current GDP estimate is up 2.9%.

Sentiment will also be tested by strong earnings with Apple (AAPL.O), Microsoft (MSFT.O), Google-parent Alphabet (GOOGL.O) and Amazon (AMZN.O) all reporting.

The European Central Bank meets this week and is expected to raise rates by 75 basis points, although it’s less clear whether it will signal another such move in December.

“While we do not expect any ‘dovish’ policy signal, we maintain a bias toward a rate path below that currently set by the markets,” NatWest Markets analysts said in a note.

“We expect +50bp in December and +25bp in early 2023 for a peak at 2.25%,” they added. “There is more uncertainty around QT (quantitative tightening), where the start of sales in Q1 2023 may well be announced.”

The euro was down slightly at $0.9835, after briefly hitting $0.9899 at the start of the session.

The Bank of Canada is also expected to tighten its policy by 75 basis points at its meeting this week. Read more

The possibility of a slowdown in US rate hikes helped bonds pare some of their recent heavy losses, with 10-year US Treasury yields falling to 4.16% from a 15-year high of 4.337 % Friday.

In commodity markets, gold was discounted to $1,654 an ounce.

Oil prices gave up early gains following soft Chinese demand data. Brent fell 42 cents to $93.08 a barrel, while U.S. crude fell 41 cents to $84.64.

Reporting by Wayne Cole; Editing by Jacqueline Wong and Christopher Cushing

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