Stocks trim first-half rally; dollar-yen hits 145: markets wrap
A gauge of global stocks fell slightly on Friday, trimming a first-half rally that’s defied rising interest rates and the risk of recessions in major economies.
The yen whipsawed after weakening through the closely watched 145 level versus the dollar, which drew verbal intervention from authorities in Tokyo.
As the second quarter draws to a close, Japan’s Topix was down for the day but headed for a gain of well over 20% since the start of the year. Chinese equities fluctuated on Friday while remaining in the red versus the start of January. MSCI Inc.’s measure of developed and emerging markets was up 12% year-to-date.
US futures ticked higher after the S&P 500 made a modest advance on Thursday as traders adjusted their positions at the end of the quarter.
The yen’s depreciation through 145 for the first time since November was followed by a rapid retracement to around 144.80 after Finance Minister Shunichi Suzuki told reporters the government would respond appropriately to any excessive moves in the currency market.
Earlier, inflation in Tokyo re-accelerated for the second time in three months in June, supporting expectations the Bank of Japan will raise its prices forecast. Yet this may not be enough to shift the BOJ’s monetary settings anytime soon, leaving the yen under pressure versus currencies like the dollar that are supported by higher interest rates.
The offshore yuan remained in the spotlight after the recent slide to its lowest level in seven months. It appreciated on Friday, for the first time in three days, after the People’s Bank of China again set the daily reference rate for currency at a level stronger than the average estimate in a Bloomberg survey.
The currency is down almost 5% against the dollar this year, prompting extra scrutiny from Chinese regulators, according to people familiar with the matter.
Purchasing managers’ index data from China on Friday underscored concern that the economy is losing steam, bolstering calls for more policy support.
Treasuries steadied on after a selloff in the previous session that saw two-year yields jump 15 basis points as investors moved closer to the Federal Reserve’s view for tighter monetary policy in the coming months. Swap markets now indicate a nearly 50% chance of a second Fed hike by year-end. A measure of dollar strength was little changed.
Australian and New Zealand sovereign bond yields jumped about eight basis points as the upward pressure on rates flowed through. Economists are evenly split on the chances of the Reserve Bank of Australia hiking rates at its meeting next week. Trader positioning is leaning toward a pause in July before another move up in August.
Meanwhile, Thursday’s readings on US jobless claims and the gross domestic product showed the world’s biggest economy was in better shape than many had envisioned at the start of 2023. While key gauges of inflation closely watched by the Fed were revised down slightly while remaining well above the central bank’s 2% target.
After the data came out, the US yield-curve inversion intensified — with longer-dated yields rising less than shorter-maturity ones. That means the economy may look stronger now, but investors expect the Fed’s rate increases to curb future growth, which could boost the risk of a recession down the road.
“Rate hiking works on a lagging basis. It tends to start to really erode consumerism 14 to 16 months in and we’re in month 15,” Frances Stacy, director of strategy at Optimal Capital Advisors, said on Bloomberg Television. “The Fed is going to stamp on growth and they’re going to stamp on growth to quell inflation until something in the system breaks where they can no longer justify stamping on growth.”
Elsewhere in markets, oil inched higher in a choppy session as traders weighed a hawkish rate outlook against positive signals from the US economy.
Gold was little changed while headed for its third consecutive weekly loss. DM