Dollar Declines, Yen Gains; Equities Erase Advance: Markets Wrap

(Bloomberg) — The dollar declined while stocks traded mixed as investors weighed expectations for easing inflation that have fueled January’s rally in riskier assets.

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The greenback fell against both emerging-markets and Group-of-10 currencies on bets that the Federal Reserve will slow the pace of interest-rate hikes. Australia’s dollar strengthened above 70 cents for the first time since August, a reflection of improved appetite for riskier assets.

A benchmark of Asian equities trimmed earlier gains as Hong Kong-listed shares fell. Mainland China equities remained higher. US futures fluctuated after stocks on Wall Street closed at the strongest level in a month on Friday and contracts for Europe climbed.

Japanese markets continued to be driven by speculation of a shift in monetary policy, with the Topix index trading lower as the yen’s rebound weighed on exporters.

Investors are on guard for another surprise from the Bank of Japan when it sets policy on Wednesday. The yen strengthened to levels last seen in May and Japan’s benchmark 10-year bond yield pushed above the top of the BOJ’s ceiling for a second day.

Bitcoin traded above $21,000 following a rebound over the weekend, when it surged amid optimism that it may have bottomed.

Bond yields were steady in Australia and higher in New Zealand. There was no trading in Treasuries, with US financial markets closed for a holiday. The 10-year US yield climbed back to 3.50% on Friday.

Hong Kong-listed technology slid after strong gains in recent months. Investors have been pouring money back into the sector but remain wary of regulatory risks.

The impact of surging Covid infections was also on the minds of traders, but not enough to hold back the Shanghai Shenzhen CSI 300 Index, which jumped more than 1.5%. The World Health Organization has urged China to share more detailed information on the spread of virus after the government’s announcement of almost 60,000 related deaths in a month.

The People’s Bank of China kept the rate of its one-year medium-term lending facility unchanged and added less cash than expected into the banking system before the Lunar New Year holidays. The move is likely to fuel speculation the central bank may use other channels to ensure there’s adequate liquidity.

The offshore yuan fluctuated and the nation’s 10-year bond yield touched to the highest since November 2021.

A host of Fed officials will be speaking this week, providing more clues for investors. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers there including European Central Bank President Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.

The busy week will also be punctuated by more corporate earnings, such as Wall Street heavyweights Goldman Sachs Group Inc. and Morgan Stanley.

Markets may see another downshift in the Fed’s pace of rate hikes in February as the latest inflation print shows that “we are certainly on the right path,” according to Skylar Montgomery Koning, senior global macro strategist at TS Lombard.

TS Lombard does not expect the Fed’s terminal rates to reach very high levels and actually sees an increasing risk that the central bank fails to defeat inflation, she said on Bloomberg Television.

Elsewhere in markets, iron ore tumbled after China pledged to tighten supervision on pricing after the metal’s surge in recent months. Oil and gold slid.

Key events this week:

Earnings this week are scheduled to include: Charles Schwab, Discover Financial, Goldman Sachs, HDFC Bank, Interactive Brokers, Investor AB, Morgan Stanley, Netflix, Procter & Gamble, Prologis, State Street
World Economic Forum’s kicks off in Davos, Monday
US markets closed for Martin Luther King Jr. Day, Monday
China retail sales, industrial production, GDP, Tuesday
US Empire State manufacturing survey, Tuesday
Fed’s John Williams to speak, Tuesday
Eurozone CPI, Wednesday
US retail sales, PPI, industrial production, business inventories, MBA mortgage applications, cross-border investment, Wednesday
Bank of Japan rate decision, Wednesday
Federal Reserve releases Beige Book, Wednesday
Fed speakers include Raphael Bostic, Lorie Logan and Patrick Harker, Wednesday
US housing starts, initial jobless claims, Philadelphia Fed index, Thursday
ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday
Fed speakers include Susan Collins and John Williams, Thursday
Japan CPI, Friday
China loan prime rates, Friday
US existing home sales, Friday
IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 6:42 a.m. in London. The S&P 500 rose 0.4% Friday
Nasdaq 100 futures fell 0.2%. The Nasdaq 100 rose 0.7%
Euro Stoxx 50 futures rose 0.5%
Japan’s Topix index fell 0.9%
South Korea’s Kospi index rose 0.6%
Hong Kong’s Hang Seng Index fell 0.7%
China’s Shanghai Composite Index rose 1%
Australia’s S&P/ASX 200 Index rose 0.8%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.0844
The Japanese yen was little changed at 127.99 per dollar
The offshore yuan was little changed at 6.7198 per dollar
The British pound rose 0.1% to $1.2241

Cryptocurrencies

Bitcoin rose 1.3% to $21,184.19
Ether rose 1.3% to $1,573.23

Bonds

Commodities

West Texas Intermediate crude fell 0.7% to $79.27 a barrel
Spot gold was at $1,915.24 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.