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GLOBAL MARKETS-Yen rises as policymakers speak out, inflation worries hit world stocks

reuters.com · 06/10/2022 07:51
GLOBAL MARKETS-Yen rises as policymakers speak out, inflation worries hit world stocks

Dollar drops 0.45% vs yen

World stocks eye 2% loss for week

Two-year U.S. yields at highest since Nov 2018

By Carolyn Cohn

- The yen rose on Friday after Japanese policymakers made rare comments about its weakness, while world stocks hit a two-week low as worries about U.S. and European inflation and rate rises translated into concerns about global growth.

U.S. S&P futures ESc1 ticked down 0.17%, indicating a lower open on Wall Street after steep losses on Thursday.

Japan's government and central bank said they were concerned by recent sharp falls in the yen in a rare joint statement, the strongest warning to date that Tokyo could intervene to support the currency. nT9N2XH02A

After a meeting with his Bank of Japan (BOJ) counterpart, top currency diplomat Masato Kanda told reporters that Tokyo will "respond flexibly with all options on the table".

The yen has been ploughing 20-year lows against the dollar and seven-year troughs against the euro EURJPY= on expectations the BOJ will continue to lag behind other major central banks in exiting stimulus policy.

"Generally if you look back at BOJ behaviour, if they say they will take appropriate action that is seen as the top level of intervention they go through before physical intervention," said Adam Cole, chief currency strategist at RBC Capital Markets.

Meanwhile, the ECB said on Thursday it would deliver its first interest rate rise since 2011 next month, followed by a potentially larger move in September. nL1N2XW0AB

Analysts at Deutsche and Morgan Stanley lifted their euro zone rate hike forecasts on Friday. nL8N2XX0NS nL8N2XX1CA

Investors expect the Federal Reserve to raise interest rates by 50 basis points next week, especially if U.S. consumer price data on Friday confirms elevated inflation.

The consensus forecast sees a year-over-year inflation rate for May of 8.3%, unchanged from April.

"A lot of focus is on this current number, it's not going to be a big move," said Matthias Scheiber, global head of portfolio management for multi-asset solutions at Allspring.

"I don't think it will derail what central banks currently have on their minds."

However, rate rises may hit growth, Scheiber said, adding that he had turned slightly underweight on equities in recent weeks as a result of this concern.

MSCI's world equity index .MIWD00000PUS fell 0.54% to its lowest since May 26, and was heading for a fall of more than 2%for the week.

The dollar fell 0.45% to 133.77 yen JPY= and but rose 0.18% to a three-week high against a basket of major currencies =USD. The euro EUR=EBS fell 0.23% to 2-1/2 week lows at $1.059.

European stocks .STOXX fell 1.5% to three-week lows.

It was the 17th week in a row of outflows for European equities in the week to Wednesday, according to BofA, with $2.1 billion leaving the space, as the sector has been hit hard by the Russia-Ukraine war. nL8N2XX0YT

Pressure is rising on other central banks to tighten, with the BoE and Sweden's Riksbank expected to hike rates again next week.

Britain's FTSE 100 .FTSE fell 1.2% to 3-week lows.

The Bank of England said on Friday it was satisfied that Britain's top banks could be shut down without putting at risk the stability of the financial system or disrupting customers. nL8N2XX101

The two-year U.S. Treasury yield US2YT=RR, which rises with traders' expectations of higher fed fund rates, continued its climb, hitting its highest since Nov 2018 at 2.862%.

The yield on benchmark 10-year Treasuries US10YT=RR dipped to 3.035% compared with its U.S. close of 3.042%.

Ten-year German government bond yields DE10YT=RR weakened to 1.413%, after hitting their highest since 2014 on Thursday.

Italy's 10-year yield IT10YT=RR rose to its highest since 2018 at 3.78% on Friday before easing to 3.73%. EUR/GVD

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.9%, weighed down by a 1.2% drop in resources-heavy Australia .AXJO and a 1.1% retreat in South Korea .KS11. Japan's Nikkei .N225 fell 1.5%.

However, continued strong buying by foreign investors and cautious hopes of regulatory easing on tech firms lifted China stocks, despite news that the cities of Beijing and Shanghai were back on COVID-19 alert.

China's blue-chip CSI300 index .CSI300 was up 1.5%, while Hong Kong shares .HSI trimmed earlier losses to be off 0.2%.

Oil rose and was on track for another weekly gain supported by solid fuel demand in the United States, although fresh COVID-19 alerts in Shanghai and Beijing curbed gains. O/R

U.S. crude CLc1 gained 0.75% to $122.42 a barrel. Brent crude LCOc1 rose 0.88% to $124.13 per barrel.

Spot gold XAU= fell 0.36% to $1841.07 per ounce. GOL/



World FX rates YTDhttp://tmsnrt.rs/2egbfVh

Global asset performancehttp://tmsnrt.rs/2yaDPgn

Asian stock marketshttps://tmsnrt.rs/2zpUAr4

How ECB rate-hike expectations have shifted this weekhttps://tmsnrt.rs/3aHIEWK

(Additional reporting by Dhara Ranasinghe in London, Stella Qiu in Beijing and Alun John in Hong Kong; Editing by Kim Coghill, Elaine Hardcastle and Chizu Nomiyama)

((carolyn.cohn@thomsonreuters.com))

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