Dollar slides as treasuries rally more on Fed bets: Markets wrap

The dollar fell along with Treasury yields, on growing expectations that the Federal Reserve is done with policy tightening and may start cutting interest rates next year.

The US currency dropped for a fifth day as it weakened against all its Group-of-10 peers and most emerging-market counterparts in Asia.

“Attention will now move to Chair Powell’s speech on Friday to see if the tone points to a clear pivot towards easing,” Daragh Maher, head of FX strategy for the US at HSBC, wrote in a note. “If it materializes, this would clearly be a challenge to our bullish US dollar view.”

The Bloomberg Global Aggregate bond index is up 4.9% in November and on course for its best month since December 2008, after recent data indicated slowing inflation and weaker economic activity. The rally followed fresh dovish rhetoric from Fed officials and billionaire investor Bill Ackman’s bet on sooner-than-predicted rate cuts.

The MSCI All Country World Index of stocks has gained 8.8% so far this month, its most since November 2020.

Fed swaps are anticipating over 100 basis points of rate cuts by the end of 2024 after Governor Christopher Waller said the bank is well positioned to push inflation to a 2% target.

Two-year Treasury yields dropped another five basis points to 4.69% after shedding 15 basis points Tuesday while a Bloomberg gauge of the dollar is on track for its worst month in a year, as fears of a recession and dovish Fed commentary spurred investors to wager the central bank will have to reverse its most aggressive tightening cycle since the 1980s.

Stocks in Asia were mixed. A gauge of Hong Kong shares fell over 2% and headed for its lowest close in a year, weighed by losses in some tech firms following a growth warning by food-delivery giant Meituan. Meanwhile, Australia remained a bright spot after cooling inflation bolstered the case for the local central bank to resume pausing interest rates next week.

US equities futures edged higher while their European counterparts were flat.

The New Zealand dollar rallied about 1% against the greenback after the Reserve Bank of New Zealand’s new policy rate forecasts show a slightly higher track 2024, implying a chance of an increase, and no reduction until mid-2025. The central bank kept interest rates unchanged for a fourth straight meeting Wednesday.

Emerging Asian currencies also jumped, led by the Thai baht and Taiwanese dollar. Japanese yen rose to the strongest level in more than two months, partly due to month-end corporate demand.

“The latest round of dovish Fed comments, which open the door to rate cuts in 2024, follows cautious comments from Fed officials in early October, which we noted as the start of the pivot,” said Tony Sycamore, a market analyst at IG Australia Pty. “In my thirty years in markets, I have not seen a central bank come close to executing such a well-timed pivot, punctuated by a patch of softer inflation and labor market data.”

In a speech entitled “Something Appears to Be Giving,” Governor Waller — one of the most-hawkish officials — said he’s “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.” While acknowledging the many uncertainties, his colleague Michelle Bowman refrained from telegraphing an imminent hike.

Elsewhere, oil held its biggest gain in a week as traders awaited a high-stakes OPEC+ meeting on supply. Gold extended gains to its highest level since May, also buoyed by hopes of a Fed policy shift.

On the economic front, US consumer confidence rose for the first time in four months in November, aided by more optimistic views about the outlook for the labor market. Home prices hit a fresh record high, according to seasonally adjusted data from S&P CoreLogic Case-Shiller.

In the corporate universe, Meituan shares tumbled the most in more than a year after the company warned that growth in its main meal delivery business would slow this quarter and spending on promotions rise. PDD Holdings surged 18% after reporting a stronger-than-anticipated doubling in revenue, as hit shopping app Temu ramped up discounts and marketing to grab consumers from Shein and Amazon.com.

Meantime, Jack Ma urged Alibaba Group Holding’s staff to take a page from hard-charging rival PDD in a surprise internal memo, in which the billionaire called on the company he co-founded decades ago to embark on fundamental change. Alibaba was down 2.6% in Hong Kong.

Key events this week:

• OECD releases biannual economic outlook, Wednesday
• Eurozone economic confidence, consumer confidence, Wednesday
• Bank of England Governor Andrew Bailey speaks, Wednesday
• US wholesale inventories, GDP, Wednesday
• Cleveland Fed President Loretta Mester speaks, Wednesday
• Fed releases its Beige Book, Wednesday
• China non-manufacturing PMI, manufacturing PMI, Thursday
• OPEC+ meeting, Thursday
• Eurozone CPI, unemployment, Thursday
• US personal income, PCE deflator, initial jobless claims, pending home sales, Thursday
• China Caixin Manufacturing PMI, Friday
• Eurozone S&P Global Manufacturing PMI, Friday
• US construction spending, ISM Manufacturing, Friday
• Fed Chair Jerome Powell to participate in “fireside chat” in Atlanta, Friday
• Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 2:40 p.m. Tokyo time. The S&P 500 rose 0.1%
• Nasdaq 100 futures rose 0.1%. The Nasdaq 100 rose 0.3%
• Japan’s Topix fell 0.4%
• Hong Kong’s Hang Seng fell 2.3%
• Shanghai Composite fell 0.5%
• Euro Stoxx 50 futures rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $1.1000
• The Japanese yen rose 0.3% to 147.06 per dollar
• The offshore yuan rose 0.1% to 7.1232 per dollar
• The Australian dollar was little changed at $0.6645

Cryptocurrencies

• Bitcoin was little changed at $37,966.4
• Ether fell 0.1% to $2,051.77

Bonds

• The yield on 10-year Treasuries declined four basis points to 4.28%
• Japan’s 10-year yield declined 7.5 basis points to 0.675%
• Australia’s 10-year yield declined 13 basis points to 4.36%

Commodities

• West Texas Intermediate crude rose 0.2% to $76.55 a barrel
• Spot gold rose 0.2% to $2 045.65 an ounce