Ankur Banerjee
SINGAPORE (Reuters) – Asian stocks rose on Tuesday while the dollar strengthened, keeping the yen near 152 per dollar, leading traders to worry about possible intervention as Federal Reserve expectations were close to cutting interest rates.
Data on Monday showed U.S. manufacturing rose for the first time in a year and a half in March as manufacturing rebounded sharply and new orders picked up, underscoring the strength of the economy and casting doubt on the timing of the Federal Reserve’s rate cuts.
Strong manufacturing data sent U.S. Treasury yields higher, with two-year and 10-year yields hitting two-week highs, lifting the dollar.
Futures indicated European stock markets were preparing for a subdued opening, with Eurostoxx 50 futures up 0.10%, German futures up 0.02% and higher 0.07%.
was unstable. It regained the 40,000-point mark in the morning session but was last seen unchanged below that mark.
The yen weakened slightly to 151.76 per dollar, not far from the 34-year low of 151.975 it hit last week, with traders closely watching for hints of intervention from Japanese authorities.
“The constant flow of hard data from the US is making life increasingly uncomfortable for Japanese currency officials trying to prop up the yen,” said Tony Sycamore, market analyst at IG.
“This also means that a smoothing event (physical intervention) is unlikely to occur until the 152.00 level is broken.”
Tokyo intervened in the foreign exchange market in 2022, first in September and then in October, when the yen fell to 152 per dollar, a level last seen in 1990.
Japanese Finance Minister Shunichi Suzuki said on Tuesday that authorities are ready to take appropriate measures against excessive volatility in the foreign exchange market.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.65%, led by Hong Kong shares. The index rose more than 2%, recording gains as the financial hub reopened after a bank holiday on Friday and Monday.
Chinese shares fell on Tuesday after posting their biggest daily gain in a month on Monday, as the latest manufacturing activity data signaled the country’s economic recovery was gaining momentum.
Overnight, the first session of the second quarter began on a calm note, weighed down by concerns about the timing of interest rate cuts after stronger-than-expected manufacturing data pushed Treasury yields higher. The benchmark US index posted its biggest first-quarter percentage gain in five years. [.N][US/]
Bond yields fell to 4.309% on Tuesday, having hit a two-week high of 4.337% in the previous session.
The yield on two-year U.S. Treasury notes, which typically moves in lockstep with interest rate expectations, fell 2.5 basis points to 4.693% on Tuesday, not far from the nearly two-week high of 4.726% hit in the previous session.
Higher yields broadly lifted the dollar, with the euro falling 0.11% to $1.0731 and sterling falling to $1.2541, down 0.07% on the day.
Against a basket of currencies, the dollar rose 0.048% to 105.05, narrowly missing the 4-1/2-month high of 105.07 it hit on Monday following stronger-than-expected manufacturing data.
According to the CME FedWatch Tool, markets now rate the likelihood of the Fed cutting rates in June at 61%, up from 70% the week before. They also forecast a contraction of 68 basis points this year.
“Markets may have overreacted to the sharp ISM manufacturing data given Fed Chairman Powell’s insistence on easing policy restrictions later this year,” said Nicholas Chia, Asia macro strategist at Standard Chartered (OTC:).
“If core PCE inflation falls to 2.5%-2.6% by the June meeting, a rate cut is possible, opening the door to moderate dollar weakness. US yields and the US dollar.”
Commodity prices rose 0.51% to $84.14 a barrel at $87.85, up 0.49% on the day, helped by signs of improving demand and rising tensions in the Middle East. [O/R]
added 0.3% to $2,256.46 an ounce after hitting an all-time high of $2,265.49 on Monday. [GOL/]