Stocks waver as traders seek interest rate cues; yen slumps

BLOOMBERG

Global equity markets struggled for direction as traders parsed the latest commentary from central bankers for clues on the path for interest rates.  At the start of another busy week of earnings, Heineken NV slumped as much as 6.4% after the Dutch brewer reduced its earnings forecast. Apple Inc and Amazon.com Inc are among companies reporting in the coming days. European stocks and US equity futures were steady following a rally that pushed the Nasdaq 100 nearly 2% higher amid optimism that a soft landing for the world’s biggest economy is within reach.
European Central Bank (ECB) President Christine Lagarde told Le Figaro newspaper the ECB could hike again, even if it pauses at its next meeting. In the US, Federal Reserve Bank of Minneapolis President Neel Kashkari described the inflation outlook as “quite positive,” despite the likelihood of job losses and slower growth. Yields on German bonds and US Treasuries climbed.
The yen dropped against the dollar after the Bank of Japan announced unscheduled bond-purchase operations to buy debt. The BOJ was seeking to contain a selloff after it said Friday it will allow yields to rise above a 0.5% cap.
“We had the BOJ making sure yields remained capped,” said Jane Foley, head of currency strategy at Rabobank. “They clearly don’t want yields rising too much, so the action drove home the point it was perhaps more of a technical adjustment than a change in policy.”
This year’s advance on Wall Street suggests that US equities are tracking the same path they did in 2019, which was one of the best years for the S&P 500 over the past decade, according to Morgan Stanley strategist Michael Wilson. The benchmark is set to close out a fifth month of gains, the longest such winning streak since August 2021.
“The data we have today suggests to us that we are in a policy-driven, late-cycle rally,” Wilson, a staunch equities bear, wrote in a note. The latest example of such a period occurred in 2019 when the Federal Reserve paused and then cut rates and its balance sheet expanded toward the end of the year. “These developments fostered a robust rally in equities that was driven almost exclusively by multiple and not earnings, as has been the case this year.”
In other individual stock moves, Carvana Co dropped in premarket trading after analysts at Jefferies turned bearish on the online used-car dealer. MetLife gained after Bloomberg News reported that Singapore insurer Great Eastern Holdings Ltd is in talks to buy the company’s Malaysian venture.
Equities in Asia rose, with Chinese stock gauges higher on expectations of more government stimulus. More government efforts to shore up the economy emerged, including a plan to boost consumer industries and steps to grow an exchange dedicated to helping small firms get access to funds.
“The government’s stance has clearly turned more supportive,” said Vey-Sern Ling, managing director at Union Bancaire Privee. There is more confidence that China will back up stimulus talk with concrete measures, he added. Japan remains a focus for traders. BOJ Governor Kazuo Ueda said the central bank would allow 10-year bond yields to rise above a ceiling it now calls a point of reference. That potentially paves the way for a future normalisation of policy that has implications for a wide range of global assets heavily exposed to Japanese money. Yields on 10-year Japanese bonds jumped to their highest in nine years.