Day: October 20, 2023

The dollar nudged at the closely watched 150 level against the yen on Friday, encouraged by a rise in U.S. 10-year Treasury yields towards 5% after Federal Reserve Chair Jerome Powell suggested there was scope for more rate rises.

The yield on the benchmark 10-year Treasury , which nudged at 5% for the first time in 16 years overnight, has risen by 30 basis points this week – marking its biggest weekly rise since April 2022.

War in the Middle East has sparked a push into safe-haven assets like gold and the Swiss franc , but trading in Treasuries has been dominated by the rate outlook.

Yet this has not translated in a similar boost to the dollar this week, which has toyed with the 150 level against the yen, the point at which many market participants believe Japan’s Ministry of Finance (MOF) could step in to shore up the currency.

“There is a sense that the market is obviously very mindful that the 150 threshold that we’re close to again this morning is a potential precursor for the uncertainty of having the MOF on the other side of it,” Jeremy Stretch, head of G10 currency strategy at CIBC Capital Markets, said.

“The other factor is we are still in a situation where we’ve seen the market remain relatively long of dollars anyway, that resumption of adding to those dollar positions is a tough ask,” Stretch said.

Speculators have almost doubled their bullish dollar positions against other G10 currencies this month to the most in a year.

Meanwhile, the dollar/yen pair , which on Friday was up 0.1% at 149.905, tends to track 10-year U.S. yields. This week’s bond sell-off has raised the chances of a break of 150 in the currency.

“There is a mindset that the Ministry of Finance will intervene at 150, and that belief has become really sticky,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo.

“But if that sticky belief breaks, that’s going to be interesting. There is room for a big move up in dollar-yen, and it could go quickly,” Omori said, adding the next key point would be 155 per dollar, the highest since mid-1990.

At a closely-watched speech on Thursday, Fed Chair Powell said the strength of the U.S. economy and continued tight labour markets could require still tougher borrowing conditions to control inflation, though he added rising market interest rates could reduce the need for the central bank to act.

“The market seems to be more comfortable with the view that the Fed is going to pause, or at least pass on a rate rise out of the Oct. 31-Nov. 1 meeting,” said Ray Attrill, head of FX strategy at National Australia Bank.

“Obviously, he’s still not shutting the door to the prospect of higher rates, but there were a few words in Powell’s (speech) that I do think represent a little bit of a softening in the tone.”

Money markets show traders fully expect to see no change in rates at the Fed’s next policy meeting.

But the chances of a rate cut in the first half of next year are fading fast, according to a recent Reuters poll.

Elsewhere, the pound fell as much as 0.37% to two-week lows after a series of data releases showed a collapse in British consumer confidence in October followed weak retail sales the month before.

Sterling was down 0.28% at $1.21045, skimming two-week lows.

The euro was flat at $1.0572, while the Swiss franc, which has caught a bid from safe-haven flows, headed for its largest weekly gain versus the dollar in three months, having risen 1%. The Swissie was last down against the dollar, which rose 0.2% to 0.8935 per dollar.

In Asia, the Chinese yuan was steady on the offshore market at 7.3361 per dollar, after China kept its benchmark lending rates unchanged at the monthly fixing on Friday, matching market expectations.

“I do expect some more monetary easing going forward, specifically before year end,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“Even though we got that stronger-than-expected data dump and GDP earlier in the week, I think underneath the surface, the Chinese economy is still pretty fragile.”

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NEW YORK (Reuters) – Some investors believe a bond market selloff that has pushed the benchmark U.S. Treasury yield to 5% may have more room to run, as the Federal Reserve gives little indication of veering from its “higher for longer” mantra.

Fed Chair Jerome Powell walked a narrow line in his speech before the New York Economic Club on Thursday, saying the stronger-than-expected economy might warrant tighter financial conditions while also noting emerging risks and a need to move with care.

Still, some traders interpreted his comments as an endorsement of keeping rates around current levels through most of next year. Yields on the benchmark 10-year Treasury, which move inversely to bond prices, rose briefly to 5% late on Thursday, a closely watched level not seen since 2007. Stocks sold off on Thursday with the S&P down 0.85%.

“The underlying message is ‘don’t be looking for a bailout from the Fed anytime soon,’” said Greg Whiteley, a portfolio manager at DoubleLine. “That gives people the go ahead to take rates above 5%.”

Whiteley said that he sees 10-year yields moving as high as 5.5% before peaking.

An extended climb in Treasury yields risks exacerbating the pressures that have dogged a broad array of assets in recent months. U.S. government bonds are on track for an unprecedented third straight year of losses, while the S&P 500 is off 7% from its July high as the promise of guaranteed yields on U.S. government debt draws investors away from equities. Credit spreads have widened in recent weeks, while mortgage rates have crept up to their highest since 2000.

“What really matters to the markets is how long we sustain 5% interest rates or higher and what sort of damage that does to the economy as a whole,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. He believes a sustained move above 5% on the 10 year yield is “not out of the question.”

“The longer we remain at higher interest rates, the more likely something is to break,” Goldberg said.

Expectations that the Fed’s aggressive monetary tightening may cause a recession were pushed back several times over the past year as economic activity has proved more resilient to higher borrowing costs than many had predicted.

Powell on Thursday also nodded to the “term premium” as a driver for yields. The term premium is the added compensation investors expect for owning longer-term debt and is measured using financial models. Its rise was recently cited by one Fed president as a reason why the Fed may have less need to raise rates.

Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute, said that higher yields and more broadly tightening financial conditions were “doing the Fed’s work for it” by tamping down growth and helping cool inflation.

While interest rate increases have an immediate impact on short-term yields, the recent surge in long-term bond yields indicates the market has embraced the idea that rates will remain higher for longer. “The Fed needs both barrels firing and now the long end of the curve has finally bought in that Fed won’t cut rates soon and when they do they won’t be sizable,” he said.

Alan Rechtschaffen, senior portfolio managers and financial advisor at UBS Global Wealth Management, was among those wary of the knock-on effects elevated yields could have.

“The Fed has to be cautious here because I don’t know that they’re entirely secure in being able to predict what’s going to happen next,” said Rechtschaffen, who believes yields will top out at around 5%, though a small risk exists of them going “significantly” higher.

Others saw hints of dovishness in Powell’s remarks, or at least caution. The Fed, Powell said, is “proceeding carefully” in evaluating the need for any further rate increases, a remark that left intact expectations that the Fed will keep its benchmark policy rate steady at the current 5.25% to 5.5% range at the upcoming Oct. 31-Nov. 1 meeting.

“There was an underlying sense of patience and caution, given the potential for delayed impacts of the tightening to date,” said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income.

Still, even if the Fed cuts rates over the next few years, yields could stay above 5% if inflation and growth remain high, he said.

“A 5% yield is a shocking number … but the fact of the matter is that we’re back up to a level of rates that’s appropriate for this level of economic activity,” said Tipp.

President Biden stresses need for US to show strong support for both Ukraine and Israel and not renege on its world leadership role.

It’s never a good sign when a politician announces at 9:30 at night that they’re holding a press conference at 8:00 the next morning. When Jim Jordan did precisely this tonight, his people had to follow it up with the clarification that Jordan wouldn’t be using his press conference to drop out of the Speaker race.

Suffice it to say that people are having a little fun with the sticky situation that Jim Jordan has found himself in. Within minutes of using the “House Judiciary GOP” account to tweet out the news about his press conference, Jordan promptly began receiving negative replies. Lots of them.

Here was one reply to Jordan: “Will this be about his failed attempt to become the Speaker, or will he finally acknowledge his role in the sexual assault of the OSU wrestlers?” Someone else remarked on the absurdly early start time for the press conference: “Everyone hates you Jim, the hell anyone will sacrifice their sleep or their work to see you beg.” This just keeps getting worse for Jordan as the night goes on.

The post Everyone piles on after Jim Jordan hits the panic button appeared first on Palmer Report.

President Joe Biden addressed the nation and the world at a time of crisis in Ukraine and in the Middle East, even as the House of Representatives is not able to elect a speaker. The U.S. military shot down drones from Yemen and a look at what we know about the deadly explosion at a Gaza hospital.