Dollar gets rid of suspected Japanese interference; Stocks prepare for profits

  • The dollar was affected against the yen due to the suspected intervention of the Bank of Japan
  • European stocks rise before a profit-filled week
  • Chinese GDP beat expectations but retail sales disappoint

WASHINGTON/LONDON (Reuters) – US stocks were mixed on Monday as European markets rebounded on hopes that US interest rates may rise more slowly than previously thought and the dollar withstood another suspected Japanese intervention to rally against the yen.

The Dow Jones Industrial Average rose 133.17 points, or 0.43%, to 31,215.73 points, the Standard & Poor’s 500 lost 3.69 points, or 0.10%, to 3,749.06 points, and the Nasdaq Composite Index fell 125.83 points, or 1.16%, to 10,733.88 by 10:22 a.m.

The dollar advanced as high as 149.70 yen in early trading, before hastily retreating to 145.28 within minutes as traders and analysts said it appeared to be in the hands of the Bank of Japan. The last time was at 149,030.

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Japan likely spent 5.4 trillion – 5.5 trillion yen ($36.16 billion – $36.83 billion) in its yen-buying intervention last Friday, according to stock market brokerages in Tokyo. The Japanese authorities have not confirmed whether or not there was an intervention.

Any action to support the yen would run counter to the BoJ’s commitment to controlling the Japanese government’s borrowing costs and could increase pressure on it to back down from the yield curve control at this week’s policy meeting.

Meanwhile, Sterling was choppy in volatile trade due to news of Boris Johnson withdrawing from running for British Prime Minister.

Former finance minister Rishi Sunak will become Britain’s next prime minister after winning the race to lead the Conservative Party, which could reduce some of the political uncertainty surrounding the British pound.

The British pound was last traded at $1.12935.

“Everyday life is tough. My favorite expression all this morning is that this is the time to be a poker player, not a chess player. It’s all about positioning, feelings and understanding who you’re playing against,” said Kate Jukes, Societe Generale strategist.

Stocks mostly extended the rebound that started late Friday in New York due to the Federal Reserve’s talk of when to slow the pace of rallies and may signal a pullback at its November meeting.

Markets are still 75 basis points higher next month, but they scaled back bets on a similar move in December. Peak prices have also fallen to around 4.87%, from above 5% early last week.

Fed officials, including San Francisco Fed President Mary Daly and St. Louis President James Bullard, indicated that the pace of tightening would be at the center of any policy discussion at the November meeting.

European Central Bank, Bank of Canada getting ready to walk

“What this means for markets is that prices and FX markets can now become more sensitive to incoming economic data and any evidence of financial market stress,” said Derek Halpini, head of research at MUFG.

The picture in the stock market has been more mixed. European indices rose, ahead of a profit-filled week, with the STOXX 600 (.STOXX) up 1.31% on the day, while emerging stocks took a big hit, largely due to heavy selling in China.

China’s blue-chip stocks (.CSI300) slumped nearly 3%, while Hong Kong stocks tumbled 6.4%, their biggest one-day decline since the financial crisis. The offshore yuan hit another record low against the dollar after Xi Jinping secured an unprecedented third term of leadership, selecting a supreme governing body filled with loyalists. Analysts say Xi is likely to stick to his policy of not spreading the novel coronavirus, which is detrimental to growth.

Late GDP data showed that China’s economy grew 3.9% in the third quarter, above expectations of 3.5%, but retail sales disappointed, rising 2.5%.

Investors will take a look at the US GDP on Thursday and core inflation measures the following day. The economy is expected to grow at an annualized rate of 2.1% in the third quarter.

Sentiment will also be tested by some major earnings with Apple (AAPL.O), Microsoft (MSFT.O), Google’s Alphabet (GOOGL.O) and Amazon (AMZN.O) all reports.

The European Central Bank meets this week and is widely expected to raise interest rates by 75 basis points.

The euro was last traded at $0.98855, after briefly reaching $0.9899 early in the session.

The Bank of Canada is also expected to tighten the noose by 75 basis points at its meeting this week.

The possibility of a slowdown in US interest rate increases helped bonds offset some of their recent heavy losses. The 10-year US Treasury yield was trading at 4.2656% compared to a 15-year high of 4.337% on Friday.

Brent regained some of its gains, up 0.06% after falling 0.7% after weak data on Chinese demand. US crude lost 0.07%.

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Reporting from Wayne Cole. Editing by Jacqueline Wong, Christopher Cushing, Susan Fenton and Nick McPhee

Our Standards: Thomson Reuters Trust Principles.

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