Dollar climbs in Asia after Fed; stock slide eases

The dollar climbed in Asian trading after Federal Reserve chairman Jerome Powell warned against expecting a lengthy US monetary easing cycle. Stocks slid by less than seen on Wall Street, with Japanese shares in particular helped by the yen’s decline.

Japanese benchmarks opened sharply lower before recouping those losses as the yen slid. US stock futures also clawed back an early drop. The S&P 500 Index lost 1.1%, though closed off of its lows after Powell also said that he wasn’t ruling out a sequel to Wednesday’s cut.

Ten-year Treasuries gave up gains made after the Fed’s meeting, where policy makers also brought forward their plan to abandon the run-down in the bond portfolio. Hong Kong, Chinese and Australian shares fell, while Korean ones edged up. Crude oil prices tumbled. The dollar hit a two-month high.

The S&P 500 fell as much as 1.8% on Wednesday after Powell said in a press conference that the Fed’s quarter-point cut amounted to a “mid-term policy adjustment.” Two Fed officials dissented, favouring no move on Wednesday. President Donald Trump said in a tweet “Powell let us down” with the size of the reduction.

Fed fund futures showed less easing is now being priced in by markets that had been expecting almost three quarter-point cuts this year prior to yesterday’s meeting. The hope for a cycle of cuts had pushed stocks to all-time highs and sent 10-year rates dipping below 2%. Markets turned volatile as Powell signalled the Fed is in no rush to continue with easing, unless warranted by data.

“That’s what a hawkish cut looks like,’’ Morgan Stanley analysts including Ellen Zentner wrote in a note to clients. “The minimal size of the cut, the dissents, and Powell’s press conference disappointed markets, and undercut our expectation.”

With the Fed out of the way, investors will continue to keep an eye on the ongoing earnings season as well as Friday’s US jobs data and trade developments. US and Chinese trade negotiators plan to meet again in early September, as the latest round of negotiations ended with few signs of concrete progress.

Here are some of the key events to watch as the week unfolds:

The Bank of England policy decision is due Thursday.
The US July jobs report is due Friday.
Here are the main moves in markets:

Stocks

Japan’s Topix index was up 0.1%, after dropping as much as 0.8%.
Australia’s S&P/ASX 200 Index lost 0.2%.
South Korea’s Kospi index slid 0.1%.
Hong Kong’s Hang Seng Index fell 0.7%.
Shanghai Composite Index lost 0.8%.
S&P 500 futures were flat. The S&P 500 Index on Wednesday fell 1.1%, the most since May 31.

Currencies

The Japanese yen slid 0.4% to 109.2 per dollar.
The offshore yuan was little changed at 6.9083 per dollar.
Bloomberg Dollar Spot Index gained 0.2%.
The euro dropped 0.3% to $1.1046.
The British pound slid 0.3% to $1.2129.

Bonds

The yield on 10-year Treasuries rose about two basis points to 2.03%. The two-year rate added two basis points to 1.89%.
Australia’s 10-year bond yield rose about two basis points to 1.20%.

Commodities

West Texas Intermediate crude fell 1.1% at $57.92 a barrel.
Gold fell 0.3% to $1,410.42 an ounce.

© 2019 Bloomberg L.P.