Register now for FREE, unlimited access to Reuters.comRegister
LONDON, Sept 14 (Reuters) – Global stocks were caught in a sea of red on Wednesday as markets braced for an even more hawkish U.S. Federal Reserve as inflation roared, and the yen jumped as Japan gave its strongest signal yet that it could act to strengthen the battered currency.
The yen rallied more than 1%, pulling away from 24-year lows against the dollar, after a report that the Bank of Japan had carried out rate control in apparent preparation for intervention by the currency Read more
Meanwhile, US data on Tuesday showing the expansion of core inflation reverberated globally. Read more
Register now for FREE, unlimited access to Reuters.comRegister
European shares (.STOXX) fell 0.3 percent, retreating further from near three-week highs hit a day earlier, and London’s FTSE fell as much as 1 percent, although data showed the British inflation fell unexpectedly in August. Read more
In Asia, Japan’s Nikkei (.N225) fell 2.6% and the broader index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 2.2%. U.S. stock futures were mixed a day after Wall Street’s sharpest drop in two years.
“The Fed needs to go further and it is understood that the cap rate will now be above 4%,” said Seema Shah, chief strategist at Principal Global Investors.
“There had been a sense that inflation was moderating, but the data shows how sticky inflation is and that requires the Fed to step up.”
Money markets are fully priced in an interest rate hike of at least 75 basis points at next week’s Fed policy meeting, with a 38% chance of a full percentage point increase to the target rate of Fed funds, according to CME’s FedWatch tool.
The probability of a 100bp hike was zero before Tuesday’s inflation data.
That outlook kept upward pressure on US Treasury yields, with two-year yields rising to a fresh 15-year high of 3.804% in London trade.
INTERVENTION WATCH
The prospect of further aggressive rate hikes has boosted the dollar, causing distress among major central banks that have seen their currencies weaken as it fuels imported inflation.
But the yen rose more than 1% to around 143 to the dollar on a report that the Bank of Japan had taken rate control in apparent preparation for currency intervention.
Earlier, Japanese Finance Minister Shunichi Suzuki said currency intervention was one of the options the government would consider. Read more
The last time Japan stepped in to support its currency was in 1998, when the Asian financial crisis led to a sell-off of the yen and rapid capital outflows.
“Verbal jawboning may help slow the pace of yen depreciation, but is unlikely to reverse the trend unless USD and UST yields decline decisively or the BoJ changes or modifies its policy,” said the OCBC FX Strategist Christopher Wong.
While major central banks have raised interest rates, the Bank of Japan remains the resistant dove and has stuck to its very easy monetary policy stance this year.
Elsewhere, oil prices were little changed, with US crude at $87.41 a barrel and Brent steady at $93.20. Spot gold traded at $1,705 an ounce, up about 0.2%.
Register now for FREE, unlimited access to Reuters.comRegister
Reporting by Dhara Ranasinghe; additional reporting by Stella Qiu in Sydney; edited by Andrew Cawthorne
Our standards: the Thomson Reuters Trust Principles.