Hawkish comments from Fed officials support the dollar. The Japanese yen is approaching last year’s intervention levels

September 27, 2023

At yesterday’s stock market close, the Dow Jones Index (US30) decreased by 1.14%, while the S&P 500 Index (US500) lost 1.47%. The NASDAQ Technology Index (US100) closed negative 1.57% on Tuesday.

The S&P 500 (US500) and Dow Jones Industrials (US30) fell to 3-month lows, while the NASDAQ (US100) index fell to a 5-week low. Concerns about the health of the US economy pressured stocks yesterday. US new home sales in August fell by 8.7% m/m to a 5-month low of 675,000, weaker than expectations of 698,000. The Conference Board Consumer Confidence Index for September fell by 5.7 to a 4-month low of 103.0, which was weaker than expectations of 105.5.

In addition, falling tech stocks are weighing on the overall market on fears that global central banks will be forced to raise interest rates longer to fight inflation. Also weighing negatively are hawkish comments from the Federal Reserve after Minneapolis FRB President Kashkari said he believes the Fed will have to raise interest rates one more time this year due to a strengthening US economy.

Equity markets in Europe were mostly down on Tuesday. Germany’s DAX (DE40) decreased by 0.97%, France’s CAC 40 (FR40) fell by 0.70% yesterday, Spain’s IBEX 35 (ES35) was down by 0.14%, and the UK’s FTSE 100 (UK100) closed up by 0.02%.

ECB spokesman Holtzman said yesterday that it is still unclear whether the ECB has peaked as upside risks to inflation remain. But his ECB counterpart Müller does not currently expect further interest rate hikes by Europe’s Central Bank. This suggests that a rift is maturing within the ECB over the future conduct of monetary policy.

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WTI crude oil prices rose moderately amid concerns that global oil supplies will remain tight for the foreseeable future. Oil prices also rose on expectations that the EIA’s weekly oil inventories report will be released on Wednesday, which will show a decline of 900,000 barrels. Tensions in the oil market are expected to continue as OPEC+ production cuts are extended. Saudi Arabia recently said it would maintain its unilateral oil production cut of 1.0 million BPD through December. The move will keep Saudi oil production at around 9 million BPD, the lowest in three years. Russia also recently announced that it will maintain its 300,000 BPD oil production cut through December. The oil rally continues, and there are no factors for a reversal at the moment.

Asian markets traded lower on Tuesday. Japan’s Nikkei 225 (JP225) declined by 1.11% for the day, China’s FTSE China A50 (CHA50) fell by 0.77%, Hong Kong’s Hang Seng (HK50) declined by 1.48%, and Australia’s ASX 200 (AU200) was negative by 0.54% on Tuesday. On Wednesday, most Asian stocks continued to fall amid lingering concerns over a US interest rate hike, while Chinese stocks rose on positive industrial earnings data and PBoC promises to expand stimulus to the economy.

But China’s worsening real estate debt crisis remains a concern for global stock markets due to fears it will derail the country’s growth prospects and drag down the global economy. China Evergrande Group said its subsidiary Hengda Real Estate Group defaulted on a 4 billion yuan ($547 million) debt payment due on Monday, and Chinese authorities have detained former executives of the company.

Minutes from Japan’s latest monetary policy meeting showed that the board’s view was that the current monetary easing should be maintained to achieve the price target in a stable and sustainable manner. Against this backdrop, the Japanese yen continues to depreciate. Yesterday, Japan’s Finance Minister Suzuki said he was closely monitoring market trends, hinting that the government could intervene at any time to support the currency. In 2022, the Japanese government conducted record dollar sales to support the yen, which by then had passed the 150 mark. Now, the currency is on the verge of testing those same levels.

S&P 500 (F)(US500) 4,273.53 −63.91 (−1.47%)

Dow Jones (US30) 33,618.88 −388.00 (−1.14%)

DAX (DE40) 15,255.87 −149.62 (−0.97%)

FTSE 100 (UK100) 7,625.72 +1.73 (+0.023%)

USD Index 106.17 +0.18 (+0.17%)

News feed for 2023.09.25:

– Japan Monetary Policy Meeting Minutes (m/m) at 02:50 (GMT+3);
– Australia Consumer Price Index (m/m) at 04:30 (GMT+3);
– German GfK Consumer Confidence (m/m) at 09:00 (GMT+3);
– US Core Durable Goods Orders (m/m) at 15:30 (GMT+3);
– US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
– Switzerland Chairman Thomas Jordan speaks at 19:45 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Hawkish comments from Fed officials support the dollar. The Japanese yen is approaching last year’s intervention levels