Stocks Fall as Focus Turns to US CPI, Yen Surges: Markets Wrap

(Bloomberg) — US and European equity futures slipped and bonds rose Wednesday on growth concerns ahead of a US inflation report. The yen gained after a Bank of Japan official signaled more interest rate increases.

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A gauge for Asian equities fell for a third session, with benchmarks in Japan and Hong Kong leading declines. Futures for US stocks were down 0.6%. Worries over slowing growth in major economies resurfaced as oil steadied below $70 and global bond yields slid to a two-year low this week in the run-up to the US consumer price index later Wednesday and the Federal Reserve policy meeting next week.

Investor sentiment is still being driven by the bleak outlook for the Chinese economy and worries that the Federal Reserve has waited too long to ease monetary policy. Traders are leaning toward at least one super-sized rate cut this year ahead of the CPI report that’s expected to show another month of muted increases.

Vice President Kamala Harris and former President Donald Trump sparred over the state of the economy and US-China relations during their debate, with limited market responses. Trump’s support of the crypto sector saw Bitcoin slip, after Harris’ odds of winning the election increased on the betting website PredictIt to 56%, from 53% before the debate.

“On markets today, there is a lot of uncertainty ahead of next week’s expected rate cut,” said Kieran Calder, head of equity research for Asia at Union Bancaire Privee in Singapore. “Against this backdrop there are several factors which are more likely driving weaker sentiment and markets lower – lower oil, weaker China, stronger yen.”

The yen advanced to its strongest level against the greenback since December, wiping out its losses for the year, after BOJ policy member Junko Nakagawa said the central bank will continue to adjust the degree of easing. Most economists surveyed expected the central bank to wait until December or January before raising rates again, with the next decision scheduled for next week. Emerging market currencies gained against a weaker greenback.

The comments underpinned the BOJ’s message that it will raise rates further if conditions are right, a stance signaled recently by BOJ board members including Governor Kazuo Ueda. The central bank announced an interest-rate hike and a reduction in bond purchases in its previous meeting on July 31.

Nakagawa’s remarks on real rates “make markets think the BOJ may hike rates earlier and faster, possibly this year,” pushing up the yen, said Shoki Omori, chief desk strategist at Mizuho Securities Co. “The presidential debate adds to uncertainty” over the market and contributing to the yen’s volatility, he said.

Traders in the US interest-rate options market are still betting on at least one 50 basis-point Fed interest-rate cut this year — just probably not before the Nov. 5 US election.

“Given the market’s aggressive expectations for Fed rate cuts, a hotter reading should lead to downside volatility,” said Sameer Samana at Wells Fargo Investment Institute. “A cooler print has more two-way risk as it creates more room for the Fed to cut, but may also indicate the economy is slowing faster than anticipated.”

Crude has tumbled by almost a fifth so far this quarter on concerns that slowing growth in the US and China, the leading consumers, will crimp demand at a time of robust and expanding supplies. West Texas Intermediate crude rebounded on Wednesday after plummeting as much as 5% in its previous session.

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