- Nikkei peaks in month after LDP retains majority in Japan
- Decisive week for monetary policy, led by the Fed
- The US dollar holds Friday’s gains; Treasury yields a little higher
SINGAPORE, Nov. 1 (Reuters) – Shares edged higher on Monday, led by a post-election surge in the Nikkei in Japan, although bonds faltered and the dollar strengthened as traders braced for meetings of the central banks in Great Britain, Australia and the United States to define the outlook for interest rate policy.
Japan’s Nikkei (.N225) rose 2.3% to a peak in a month after Prime Minister Fumio Kishida’s Liberal Democrat Party performed better than expected in Sunday’s election, exit polls ballot boxes showing that the party easily retains a majority. Read more
Trade elsewhere was more subdued, with the MSCI Asia Pacific Ex-Japan Equity Index (.MIAPJ0000PUS) edging up. Data over the weekend showing a sharper-than-expected contraction in Chinese factory activity weighed on mood. Read more
S&P 500 futures rose 0.3%.
The Fed is the culmination of a week full of central bank meetings likely to move markets, with possible policy adjustments at the Bank of England and Reserve Bank of Australia as inflation drags on. upward pressure on the rate outlook.
The Fed, which concludes a two-day meeting on Wednesday, is expected to announce that it will start cutting its bond purchases, although markets are focusing on hints of a rate hike.
Federal funds futures forecast price increases beginning in the second half of 2022 and Goldman Sachs on Friday advanced its forecast of the increase until July from the third quarter of 2023.
“While maintaining the idea that most of the inflation we see will turn out to be transient, a risk management mindset has taken hold and central banks in developed markets are now changing course,” analysts said. Goldman Sachs in a note Friday night.
“The Bank of England looks likely to hike rates (and) the Reserve Bank of Australia seems to have dropped its anchor on the yield curve … our US economists now expect the Federal Reserve to start raising its rates in July 2022, compared to the third quarter of 2023 previously. “
OBLIGATIONS AT THE EDGE
The prospect of higher rates earlier rocked short-term bonds around the world, straining liquidity in recent weeks, although trading on Monday was a bit quieter.
Two-year US Treasury yields rose 2 basis points in Asian trade to 0.5227%. Benchmark 10-year yields rose 1.2 basis points to 1.5732%. October was the worst month in more than three years for two-year Treasuries.
An offer returned to the Australian bond market, despite the central bank’s refusal to defend its return target. Three-year Australian government bond futures rose 12.5 ticks for the last time to 98.720.
The RBA is meeting on Tuesday and will likely make some sort of adjustment to its guidance given that it allowed the April 2024 bond yield it was targeting at 0.1% to be as high as 0.818%. Monday.
In currency markets, the dollar made strong gains on Friday and edged up against the risk-sensitive Australian and New Zealand dollars. It climbed to 114.26 yen and climbed 0.1% to $ 1.1554 per euro
The British pound slipped to a two-week low of $ 1.3663 as traders believe that a small rate hike on Thursday could come with an accommodative outlook.
“Indications as to whether more hikes are coming is obviously essential and many expect another hike in February. However, like the RBA and the Fed, the BoE will want to push back market prices,” said Chris Weston, Research Manager at Broker. Pepperstone in Melbourne.
“The British Pound is trading heavily… and the bias is for a move towards $ 1.3600.”
Commodity prices edged down, benchmark Brent crude futures down 0.2% to $ 83.45 per barrel in early trade and U.S. crude futures down 0 , 6% to $ 83.06 per barrel.
The stronger dollar weighed on gold, which stood at $ 1,781 an ounce.
Reporting by Tom Westbrook; Editing by Sam Holmes
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