Aurelia Butler

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TOKYO (Reuters) – A firm U.S. dollar had the yen locked near a fresh 34-year low on Tuesday, keeping investors on heightened intervention watch as they looked ahead to key U.S. inflation report and the Bank of Japan’s rate decision this week.The yen remained pinned after hitting 154.85 yen on Monday, its lowest level since the mid-1990s, as the stark U.S.-Japan rate differentials came into focus again amid an easing in Iran-Israel tensions. It last hovered around 154.76 per dollar.Traders have been keeping wary eye as yen slips towards 155.00, a level considered by many participants as the new trigger for intervention by Japanese authorities. However, there are doubts about whether Tokyo will act so close to the Bank of Japan’s (BOJ) two-day policy meeting that starts on Thursday.Japan’s central bank is expected to project inflation will stay around its 2% target for the next three years in new forecasts due on Friday, signalling its readiness to raise interest rates again this year from current near-zero levels.Yen weakness may force the central bank to “strike a more hawkish tone,” which would bring forward expectations of another rate hike and support the yen, said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY).”But I expect USD/JPY to remain elevated in the near term because of broad USD strength, which will keep alive the possibility of FX intervention.”The weak yen complicates the BOJ’s policy path, with some market players betting the central bank could come under pressure to hike rates sooner than it wants to slow the currency’s decline.Japan’s Finance Minister Shunichi Suzuki, who has repeatedly warned against speculative currency moves in recent weeks, said on Tuesday that local authorities will work closely with overseas counterparts to deal with excessive volatility in the foreign exchange market.The dollar’s strength has been broad-based, with gains edging toward 5% this year. It was last trading around 106.09, below the five-month highs hit last week after comments from Federal Reserve officials and a run of hotter-than-expected inflation data forced a paring back of rate cut expectations. Markets are currently pricing in a 46% chance of the Fed’s first rate cut starting in September, with November not far behind at 42%, according to the CME FedWatch Tool. That was in sharp contrast to just a few weeks ago when markets were betting on June for the U.S. monetary easing cycle to begin.Investors will have another chance to assess the strength of the U.S. economy this week, with first-quarter gross domestic product data on Thursday and personal consumption price expenditures (PCE) index, the Fed’s preferred measure of inflation, on Friday.”It is conceivable that markets further push back the timing of the expected first rate cut from September, if this week’s GDP and/or PCE adds to concerns about disinflation stalling out. The risk therefore lies towards higher U.S. yields and a stronger USD,” said the Commonwealth Bank of Australia’s Kong.Markets forecasts are for a 0.3% increase in the headline PCE number in March, unchanged from the previous month, and a year-on-year gain of 2.6%, compared with a 2.5% increase in February, according to a Reuters poll.While September has emerged as the new bet for the Fed’s first rate cut, expectations remain for the European Central Bank (ECB) and Bank of England (BoE) to start cutting by mid-year.That divergence has put the euro on the back foot, with the currency on track for its biggest monthly drop against the dollar since January. The euro bloc currency was mostly unchanged on Tuesday at $1.0655.Sterling was last trading at $1.2354 after dropping to a fresh five-month low against the greenback at $1.2299 on Monday.In cryptocurrencies, bitcoin was up 0.51% at $66,879.00. More

TOKYO (Reuters) -Japanese authorities will work closely with overseas counterparts to deal with excessive volatility in the foreign exchange market, Finance Minister Shunichi Suzuki said on Tuesday.”We are watching market moves with a high sense of urgency,” Suzuki told a regular post-cabinet meeting news conference, adding that Tokyo authorities were ready to take action “without ruling out any options” against excessive currency moves.Finance leaders from the United States, Japan and South Korea agreed to “consult closely” on foreign exchange markets in their first trilateral finance dialogue last week, acknowledging concerns from Tokyo and Seoul over their currencies’ recent sharp declines. More

NEW YORK (Reuters) – A sharp selloff in U.S. bonds so far in April is prompting some investors to consider allocating more funds to the asset class to lock in higher yields ahead of interest rate cuts by the Federal Reserve, a prospect that remains investors’ base case despite U.S. economic resilience. Treasury yields, which move inversely to prices, have soared in recent weeks after a string of solid economic data and three consecutive monthly inflation prints showing a rebound in price pressures pushed out expectations of when the Fed would start cutting rates. The benchmark 10-year yield has approached 5% – a level last touched in October for the first time in 16 years.But for many, lower bond prices are an opportunity to increase so-called duration – or the interest rate sensitivity of a bond portfolio – because the U.S. central bank has signaled the next likely move in interest rates will be lower. Fund managers increase duration by buying bonds across the curve that benefit most from an interest rate move. When interest rates decline the value of bonds increases.”We’re still in the scenario in which we have strong economic growth and a Fed that has a bias to ease. That’s a pretty benign climate,” said Ashok Varadhan, co-head of global banking and markets at Goldman Sachs. He expects investors to rotate from cash to high-yielding fixed income products such as mortgages, credit and emerging markets. Jim DeMare, president of global markets for Bank of America, said investors are seeing relative value in mortgage and securitized products, even though he cautioned about uncertainty in markets.Greg Wilensky, head of U.S. fixed income and portfolio manager at Janus Henderson Investors, has been buying corporate and securitized bonds particularly in the short-to-intermediate part of the curve. “After meaningfully reducing duration after the strong rally in the fourth quarter (of 2023), we began adding duration back as yields rose,” he said. Bonds rallied late last year, when inflation was cooling and the Federal Reserve signaled it had likely reached a peak in its interest rate hikes, emboldening bond bulls who had already loaded up on fixed income as yields rose.Since then, however, things have not played out as expected: inflation is sticky, and Fed officials have repeatedly signaled there is no urgency for a less restrictive monetary policy. Some are even open to hiking again if inflation rebounds.Year-to-date returns on Treasuries have been negative at minus 3.8%, according to the ICE BofA 7-10 year Treasury Index. Even for investment grade corporate bonds, which have recorded massive demand this year as investors seek higher returns than safer Treasuries, returns have been minus 2.3% so far this year.’LOWER CONFIDENCE’Still, as yields creep back to 5%, several bond investors say they are not panicking and favor interest rate exposure even if holding those positions could be painful in the short term.”We like the duration trade and we don’t see rates going up that much more,” said Alex Morris, chief investment officer of F/m Investments. “Being a little early to that trade is okay, and right now you get positive real yields because actual coupon rates are high enough that you’re getting paid to do that trade, so it’s okay to hang out there,” he said.Of course, not everyone agrees.Investors are less optimistic on inflation falling, with 38% expecting lower yields over the next 12 months against 62% in December, according to a fund manager survey by BofA Securities. Allocations to bonds this month recorded the biggest month-on-month drop since 2003, it said.Meanwhile, traders of futures tied to the Fed’s policy rates on Friday expected less than two interest rate cuts in 2024 – the most hawkish outlook for interest rates so far this year.The peak in yields last year preceded a rally in bonds that was supported by inflation coming down and the Fed messaging it was time to move toward a more dovish direction.This time around, after three consecutive upside surprises in inflation, confidence that price pressures are easing is lower, said Anthony Woodside (OTC:WOPEY), head of U.S. fixed income strategy at LGIM America.”It’s a little too early to extend duration,” he said. More

(Reuters) – A look at the day ahead in Asian markets.Asian stocks should have a spring in their step on Tuesday after a positive start to the week locally and globally on Monday, supported by a recovery in tech shares, calm in fixed income markets, and a cooling in geopolitical tensions.Tuesday’s economic calendar is pretty full, with purchasing managers index reports from Japan, Australia and India, consumer inflation from Singapore and Hong Kong, producer inflation from South Korea and industrial production from Taiwan all on deck. Currency traders remain on high alert for yen intervention with the dollar getting closer to 155.00 yen, although there is a question whether Tokyo will act so close to the Bank of Japan’s two-day policy meeting that starts on Thursday.China’s yuan remains on the defensive too, slipping to a five-month low against the dollar on Monday.Overall sentiment is fairly buoyant after the S&P 500 and Nasdaq rebounded on Monday, as tech clawed back some of last week’s losses and Middle East tensions cooled.Investors now turn their attention to this week’s earnings from some of these tech giants – Tesla (NASDAQ:TSLA), Meta Platforms (NASDAQ:META), Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) announce their quarterly results this week, which will go a long way to determining the outlook for U.S. and global stocks in the months ahead.The ‘FANG’ index of mega U.S. tech stocks rose on Monday, snapping a six-day losing streak in which the index lost 10%. According to analysts at A.J. Bell, the ‘Magnificent Seven’ of Alphabet, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Meta Platforms, Microsoft, NVIDIA (NASDAQ:NVDA) and Tesla lost $1.1 trillion of market cap in those six days.Shares in Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chipmaker, will be looking to bounce back from Monday’s 1% fall. That followed a 6% slide on Friday after the company reported first quarter results.Official figures from Taipei on Monday showed that export orders rose less than expected in March, but the government was confident that surging demand for artificial intelligence applications will fuel future demand for the island’s high-tech products.An air of caution still hangs over markets though. Financial conditions are the tightest this year, according to Goldman Sachs’s financial conditions indices, driven almost entirely by rising long and short rates. The question now is how much higher will bond yields go? The two- and 10-year U.S. Treasury yields have both risen almost 100 basis points from recent lows, with the two-year yield nudging what many investors will consider an attractive and natural buying point of 5.00%. If yields level off, bond volatility is likely to subside, which in turn should help cool volatility in other markets. Implied U.S. equity volatility, which spiked to a six-month high on Friday, posted its biggest fall in six months on Monday.Relief, but maybe only briefly.Here are key developments that could provide more direction to markets on Tuesday:- Japan flash PMIs (April)- Singapore CPI (March)- Taiwan Industrial production (March) (By Jamie McGeever) More