Tuesday, June 6, 2023
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Market thinking: rates, rates, rates

(Reuters) – Jamie McGeever

Interest rate decisions from the Federal Reserve, the People’s Bank of China and the Bank of Japan – the week ahead won’t affect Asian markets more than that, and It comes at a pivotal moment in Asian and world markets.

Investors ran for the hills last week in yet another jaw-dropping start, as the repricing of upward U.S. rates weighed on stocks and bonds, sending the dollar surging and financial conditions sharply tightening.

It’s not just where many key bond yields and exchange rates are, it’s how quickly they get there. Six weeks ago, U.S. two-year Treasury yields were around 2.90%. It rose above 3.00% on Friday.

The Fed is widely expected to raise interest rates by 00 basis points Wednesday, with an external opportunity of 100 bps. Much greater uncertainty surrounds the People’s Bank of China and the Bank of Japan, both of which have seen rampant dollar depreciation against their exchange rates.

The Bank of Japan has issued a warning that it may intervene in the foreign exchange market to support the yen, at 24 year lows. It is also under increasing pressure to abandon the ultra-easy “yield curve control” policy that has exacerbated the weakening of the yen.

Meanwhile, the People’s Bank of China is facing a two-year low of 7.00 against the dollar, but is falling below the A fragile economy, dragged down by a bloated, crumbling real estate sector, is under increasing pressure to inject stimulus.

Difficult decisions are made most test times. Given the current pessimism and nervousness among investors, it’s hard to see what can be done to stop a recession and revive the yen and yuan’s fortunes.

Interest rate decisions in the Philippines and Indonesia later this week, as well as minutes from the Reserve Bank of Australia’s policy meeting, will also help guide these currencies. But the Big Three will call the shots.

Key developments that should give markets more direction on Monday:

Prime Minister Truss meets President Biden

ECB De Guindos Speech

US NAHB Housing Data (September)

China FDI (August)



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