US Stocks Drift as Shutdown Continues – Nasdaq down 0.7%
US stock indices fell in trading yesterday as the government shutdown continued with no sign of a resolution. The Dow dropped 0.20% to 46,602, the S&P lost 0.38% to move down to 6,714, and the Nasdaq lost 0.67%, closing at 22,788. The dollar pushed higher, with the DXY up 0.49% to 98.59, notably higher against the yen as the market continued to react to Sanae Takaichi’s surprise leadership victory over the weekend. Treasury yields pulled back, with the 2-year down 2.1 basis points to 3.568% and the benchmark 10-year down 2.7 basis points to 4.125%. Oil prices pushed higher as markets continued to reprice the lower-than-expected production increases from OPEC+, with Brent up 0.40% to $65.73 and WTI up 0.55% to $62.03. Gold continued to drive higher, hitting yet another all-time high just under the key $4,000 level, closing the day up 0.53% at $3,981.94 an ounce.
Yen in Focus for FX Traders
The yen remains very much in focus for the FX world at the moment after Sanae Takaichi’s surprise victory in the prime ministerial race led to a huge depreciation in the currency. Takaichi has pledged to boost the Japanese economy with aggressive spending and has been critical of the Bank of Japan’s interest rate hikes in the past, and traders were not prepared for her to become the next prime minister. The yen hit an all-time low against the euro earlier in the week and then fell to a seven-month low against the dollar overnight, with little in the way of retracements in the moves. USD/JPY is now trading nearly 3% above Friday’s close, and experienced FX traders are now starting to factor in the potential for official intervention in the currency if the speed of depreciation continues. From a technical perspective, long-term resistance now comes in around the 154.50 level, and a break higher from there could see recent multi-decade levels above 160.00 come into focus. It is unlikely that the MOF and BOJ will allow that to happen in short order, so traders are preparing for more volatility in the days ahead.
Central Banks in Focus Today
It is another quiet day in terms of data releases for global markets today; however, there are two major central bank updates scheduled, as well as a plethora of central bankers set to speak. Chinese markets complete their long holiday today, but the major focus for the Asian session will be the Reserve Bank of New Zealand’s interest rate call. The bank is well priced in to lower the Official Cash Rate to 2.75% from 3.00%, and even though no press conference is scheduled, bearing no surprises on the rate call, any changes in forward guidance from the rate statement could see moves in the Kiwi dollar.
The other major event of the day comes close to the end of the New York session with the FOMC’s meeting minutes due for release. As always, anything new from the committee will see strong moves in the market, particularly with no data updates from the US at the moment. There is a raft of central bankers set to speak during the day, including the ECB’s Christine Lagarde and Fed members Musalem, Barr, Goolsbee, Logan, and Kashkari. However, as we have had updates from all of the above over the last few days, traders are expecting their speeches to have minimal impact on markets.
