Japanese Shares Gain on Yen as Traders Debate Fed: Markets Wrap – Yahoo Finance

September 17, 2024

(Bloomberg) — Japanese shares rose on a weaker yen, but other Asian shares were mixed as traders debated the size of the U.S. Federal Reserve’s interest rate cut later on Wednesday.

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Japan's stock indexes rose sharply at the open as a weaker yen in New York boosted the outlook for Japanese exporters. The yen pared losses on Wednesday amid broadly cautious trading ahead of the Fed decision. Chinese stocks opened higher after a long holiday, but Hong Kong was closed.

Market expectations are that there is a 50%+ chance that the Fed will cut interest rates by half a percentage point on Wednesday, with uncertainty over the size of the cut sending riskier assets like Bitcoin and oil rallying. The Fed is expected to release a dot plot forecast along with its decision.

“The Fed meeting could lead to a lot of volatility and buyers clearly have every reason to be holding back,” said Chris Weston, head of research at Pepperstone Group. “Short sellers may try to cover their short positions, but we could well see days when stocks fall through light trading.”

What traders are waiting to see is how investors react to the Fed's decision: Will a 25-basis-point cut leave investors worried the Fed is lagging behind, or will a 50-basis-point cut spook markets into thinking policymakers must know the economy is in worse shape than currently thought?

“Under Powell, it's unusual for the market to be so 'in the air' about what the Fed will do with just one day to go,” said a strategist at Bespoke Investment Group, “but the Fed may be happy that the market is 100% confident that at the very least a rate cut will happen.”

A survey conducted by 22V Research found that investors expecting a 25 basis point rate cut are split on whether the cut would lead to a “risk-on” or “risk-off” reaction, while those expecting a 50 basis point cut believe a smaller Fed cut would lead to “risk-off.”

The yen rose about 0.6 percent against the dollar on Wednesday after falling more than 1 percent in New York. Bank of Japan Governor Kazuo Ueda and other officials are expected to keep interest rates unchanged on Friday and discuss whether conditions are in place for another rate hike this year.

Press Conference

Invesco's Christina Hooper expects the Fed to cut rates by 25 basis points and thinks what Chairman Powell says about the state of the U.S. economy in his press conference could help bolster confidence among those worried about an impending recession.

“It will be useful to hear Chairman Powell's thoughts on the expected path of rate cuts, and in particular what conditions would trigger a reversal in direction to either ease or accelerate accommodation,” she said. “These are things you can't read from a dot plot, so I consider the press conference 'must-watch TV.'”

Oil prices closed higher for a second straight day on Tuesday after what Hezbollah called an Israeli pager attack in Lebanon left thousands injured and raised fears of an escalating Middle East conflict. Oil prices stabilized higher on Wednesday, with the gloomy demand outlook coming to the fore again as industry reports showed U.S. crude stockpiles were rising and European refineries cut oil processing rates.

Major events this week:

Eurozone Consumer Price Index, Wednesday
Wednesday's Fed interest rate decision
UK interest rate decision Thursday
U.S. Conference Board Leading Index, Initial Jobless Claims, U.S. Existing Home Sales, Thursday
FedEx's financial results on Thursday
Japan interest rate decision on Friday
Eurozone consumer confidence on Friday