Dollar gains, euro dipped, yen fell; What to watch this week 

Treasury yields rose with the dollar as investors contemplate prospects for U.S. tax cuts and the potential of a less dovish Federal Reserve chief. Stocks were mixed in an Asia-Pacific region affected by holidays, after China unveiled a targeted boost to the availability of credit.

The dollar added to gains from last week, when it benefited from some speculation President Donald Trump could opt for a Fed boss who might pursue more aggressive policy tightening. Australia’s equity benchmark headed for its biggest daily gain in almost two months after China, its top trading partner, reported an unexpectedly strong manufacturing gauge and announced plans to cut the amount of cash banks must hold as reserves for certain loans. Tokyo shares fluctuated, gold slumped and oil held above $51 a barrel.

The euro dipped after a contentious vote in Catalonia on whether to split from Spain, which was marred by violence. The tensions could have a bigger effect in the bond market, with the potential for Spanish bond premiums to rise over German yields.

“It is not a game-changer for the euro, but it is likely to weigh — shifting the narrative away from the political optimism that followed Macron’s victory,” wrote RBC Capital Markets strategists led by Sue Trinh in Hong Kong, referring to President Emmanuel Macron’s victory in French elections earlier this year.

Japanese shares were mixed after the Bank of Japan’s quarterly Tankan survey showed the country’s big manufacturers are the most confident in a decade. Holidays in markets including Hong Kong, China, India and South Korea affect the Asia-Pacific region Monday.

“It’s going to be a choppy ride for Asian markets” for a while, given their surge so far this year, Vasu Menon, vice president for wealth management research at Oversea-Chinese Banking Corp. in Singapore, said on Bloomberg Television. The MSCI Asia Pacific index has climbed about 20 percent this year, against a 12 percent rise for the S&P 500.

Among the key events this week:

• Manufacturing PMIs for September are due for most of the world’s major economies. The U.S. ISM measure comes Monday.
• Investors will monitor progress toward forming coalition governments in Germany and New Zealand after elections last month left no party in either country with a majority. Also a focus:
• Japanese political polls ahead of elections expected later this month.
• U.K. Prime Minister Theresa May’s Conservative Party holds its annual conference Oct. 1-4.
• American data this week include trade, durable goods and Friday’s September nonfarm payrolls report, which may have less predictive power than usual for the economic outlook due to likely distortions from hurricanes that hit from late August.
• Australia’s central bank on Tuesday is forecast to keep its benchmark interest rate unchanged at a record low of 1.5 percent.
• The Reserve Bank of India on Wednesday is projected to keep benchmark rates unchanged.
• China is due to report monthly foreign-exchange reserves Thursday.
• Fed speakers this week welcome remarks by Yellen at an event on Wednesday, a speech on the Treasury market by board member Jerome Powell (considered a candidate for Fed chair), and New York Fed President William Dudley.

Here are the main moves in markets:

Stocks

• The Topix index of Japanese stocks was down 0.2 percent at 1,672.26 as of 1:36 p.m. in Tokyo. The Nikkei 225 Stock Average was up 0.1 percent.
• Australia’s S&P/ASX 200 Index advanced 0.8 percent, with resources companies climbing on optimism China’s growth slowdown will be modest.
• Futures on the S&P 500 rose 0.1 percent. The underlying gauge added 0.4 percent to a record 2,519.36 on Friday.
• The MSCI Asia Pacific index was little changed. The MSCI Emerging Markets Index lost 1.9 percent last week, hurt by potential for higher returns in a reflating U.S.

Currencies

• The Bloomberg Dollar Spot Index climbed 0.3 percent after having its best week of the year last week.
• The yen fell 0.3 percent to 112.84 per dollar.
• The euro also dropped 0.3 percent, to $1.1775.
• Australia’s dollar slipped 0.1 percent to 78.26 U.S. cents, while the kiwi was 0.2 percent lower, at 71.98 cents.

Bonds

• Ten-year U.S. Treasuries dipped, with yields rising about 2 basis points to 2.35 percent after they climbed 8 basis points last week.
• Japanese 10-year government bond yields, which the BOJ targets at around zero percent, were at 0.078 percent, after reaching a two-month high earlier.

Commodities

• West Texas Intermediate crude retreated 0.4 percent to $51.47 a barrel. Oil advanced 2 percent last week.
• Gold was 0.4 percent lower at $1,274.78 an ounce.

Source: Bloomberg – Dollar Gains, Stocks Mixed as U.S. Policies Mulled: Markets Wrap

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