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Sydney - Investors deferred taking any major positions ahead of the Federal Reserve’s policy meeting that’s expected to focus on unwinding stimulus efforts. The dollar and European equity-index futures headed lower with S&P 500 Index futures.
Benchmarks from Hong Kong to South Korea retreated. Japanese equities played catch-up, with the Topix index rising to the highest in more than two years following a holiday on Monday.
The pound climbed as investors lifted bets on a UK interest-rate increase this year. China’s currency slipped to a two-week low offshore, and also weakened in Shanghai, amid efforts by policy makers to counter excessive strengthening. The yen declined for a third day and Treasury yields were steady.
Markets maintained a risk-on bias after last week’s equity gains, with investors turning their attention to the Fed’s two-day meeting that starts Tuesday. While they’re widely expected to keep the benchmark interest rate unchanged, close attention will be paid to any signals for an increase later in the year and to the timing on plans to shrink the the Fed’s $4.5trn balance sheet.
China eased restrictions on shorting the yuan last week, seen as a sign Beijing wants to counter a surge that’s seen the currency gain 2.9% this half.
“We are not overly concerned about” the Fed’s quantitative tightening plans, Merrill Lynch and US Trust head of fixed-income strategy Matthew Diczok, told Bloomberg TV’s “What’d You Miss?” show. “If you model it out, over about the next three years they’ll take out about $1.3trn or so. That’s only a third of what they put into the market.
So it’s going to be very slow, very gradual, very deliberate and it shouldn’t lead to any near-term fireworks into the market at all.”
Geopolitical risks will continue to lurk in the background as US President Donald Trump prepares to address the United Nations on Tuesday for the first time, with world leaders seeking a diplomatic solution to North Korea’s nuclear provocations.
What to watch out for this week:
• The Bank of Japan (BoJ) is predicted to stand pat when it reviews policy on Thursday. The BoJ probably won’t reveal when it will unwind stimulus, but could signal determination to keep the yield curve under control.
• Indonesia and the Philippines are among countries also reviewing monetary policy this week.
• Home construction and sales of previously owned properties are the highlights of the week’s US economic calendar.
• Campaigning continues in Germany, days before the September 24 election, as Chancellor Angela Merkel and challenger Martin Schulz make their final pitches to voters.
• New Zealand goes to the polls on September 23.
Here are the main moves in markets:
Stocks
• Japan’s Topix index added 1.8% at the close in Tokyo.
• The Kospi index lost 0.1% in Seoul as did Australia’s S&P/ASX 200 Index.
• Hong Kong’s Hang Seng Index dropped 0.3% and the Shanghai Composite Index was down 0.5%.
• The Philippines’ benchmark index fell 1.1%, the biggest slide in Asia, after closing at a record high on Monday.
• Contracts on the Euro Stoxx 50 retreated 0.1%.
• S&P 500 Index futures were down less than 0.1% after the underlying measure rose 0.2% to a fresh record on Monday.
Currencies
• The yen fell 0.2% to 111.74 per dollar after slipping 0.7% last session.
• The Bloomberg Dollar Spot Index lost 0.1% after climbing 0.3% on Monday.
• The euro was up 0.4% at $1.2002.
• The British pound added 0.3% to $1.3531.
• The yuan dropped as much as 0.3% to 6.5960 per dollar in Hong Kong, the weakest intraday level since September 1.
• The Australian dollar rose 0.3% to 79.87 US cents.
• The Reserve Bank of Australia said it expects to see solid employment growth as the economy gradually picks up, while noting risks from housing debt outpacing household income.
Bonds
• Yields on 10-year Treasuries dropped one basis point to 2.22%. They increased by three basis points on Monday to the highest level in more than a month.
• The yield on similar maturity Australian bonds was steady at 2.81%.
• The three-year yield was at 2.17%, extending last week’s surge, and closing in on a three-year high.
• German 10-year bond yields were steady at 0.45%.
• Yields on Portugal’s benchmark 10-year notes slid to a 20-month low Monday after S&P Global Ratings revised the sovereign rating to BBB- from BB+ with a stable outlook.
• The yield fell 27 basis points to 2.53%, having earlier touched 2.50%, the lowest since January 2016.
Commodities
• Gold was little changed at $1 308.29 an ounce. It declined 1% on Monday.
• West Texas Intermediate crude rose 0.2% to $50.02 a barrel.
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