Financial markets are being swayed by divergent monetary policies in the world’s leading economies. Fed funds futures show the odds of a U.S. rate increase by the end of June have shot up to 54 percent from about 6 percent in the past month as data indicated growth is strengthening in the nation. China isn’t headed for a hard landing and the government will ensure expansion hits targets. Japan’s Topix extended Tuesday’s retreat from a five-week high, while benchmark equity gauges declined in Hong Kong and India. European stock index futures advanced and contracts on the Standard & Poor’s 500 Index were little changed. A measure of dollar strength climbed to a one-week high, supported by speculation the Fed will boost borrowing costs in the coming quarter. The yen fell after Japan’s central bank chief said the policy rate could move deeper into negative territory. Oil rebounded toward $37 a barrel and U.S. Treasuries held near their lowest levels since January.The Bloomberg Dollar Spot Index rose 0.2 percent, climbing for a third day on bets the Fed will reaffirm its commitment to raising interest rates. The U.S. currency will probably respond favorably to signals from the Fed, which will look to keep its options open.
This also means leaving the door wide open to a June hike, and even ajar to an April hike,the market will see this as more hawkish than currently discounted.
The yen retreated 0.3 percent to 113.51 per dollar, after strengthening 0.6 percent on Tuesday as the Bank of Japan kept its policy rate at minus 0.1 percent at a review. The central bank has quite a lot of room to cut the key rate further and theoretically it could go to minus 0.5 percent, Governor (Haruhiko Kuroda) told parliament on Wednesday.
China’s yuan was headed for its biggest three-day loss since January as the central bank lowered its daily fixing for the currency amid concern a potential tax on foreign-exchange transactions will hurt investor sentiment. It weakened 0.13 percent from Tuesday’s close.
U.S. crude inventories increased by 3.2 million barrels last week, according to a survey of government data Wednesday, with a report from the American Petroleum Institute said to indicate an increase of 1.5 million barrels. Total SA Chief Executive Officer sees the oil market back in balance during 2016, he said in an interview with Le Progres newspaper.
Copper gained 0.1 percent in London, while nickel added 0.8 percent. Gold for immediate delivery rose 0.2 percent to $1,235 an ounce, after closing Tuesday at a two-week low. It’s still up 16 percent for the year.
Gold has pulled back over the last few days, which was long overdue after an otherwise continuous rally since the start of 2016, – “All eyes will be on the Fed meeting, and any clues as to potential pace of monetary tightening throughout 2016.”
The yield on two-year U.S. Treasuries was little changed after ending Tuesday at 0.96 percent, the highest close since Jan. 6. The U.S. Treasury Bond Index has dropped 1 percent since the end of February, headed for its first monthly loss of 2016.
J.Mason ♦
Wealth is a Mindset . . 