Shares’ Reaction to Heated Global Monetary Markets

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Shares' Reaction to Heated Global Monetary Markets

Shares’ Reaction to Heated Global Monetary Markets

Any support for the yen goes against the BOJ’s commitment to limiting the cost of borrowing for the Japanese government and may put further pressure on it to relax yield curve control at this week’s policy meeting.

On hearing that Boris Johnson has withdrawn from consideration for the position of British prime minister, the pound sterling fluctuated in choppy trade. The market’s top choice for the position, former finance minister Rishi Sunak, has emerged as the front-runner, which may lessen the political ambiguity that now hangs over the pound. The Sterling rose nearly a penny to $1.1402 on the news. However, it could not hold and was last at $1.1328 while investors awaited further information.

Stocks Signal Rebound Waves

The Federal Reserve is contemplating when to reduce the rising rate and possibly announce a step back at its November meeting. Meanwhile, stocks continued the rebound that started late in New York on Friday. Markets have reduced their expectations for a similar hike in December, but they are still pricing a rise of 75 basis points for next month. The highest rate increased slightly, from above 5% early last week to roughly 4.87% today.

Fed officials, such as Mary Daly of the San Francisco Fed and James Bullard of the St. Louis Fed, said that any policy discussion at the November meeting would center on the rate of tightening. According to Derek Halpenny, head of research at MUFG, what this means for the markets is that the rates and FX markets might suddenly become more sensitive to incoming economic data and any indications of financial market stress.

On the stock market, the situation was more complicated. The STOXX 600 increased 0.7% on the day as European indexes advanced of a week that would be dominated by results, while emerging market stocks declined, mostly due to a significant sell-off in China. Delayed GDP statistics revealed that China’s economy expanded by 3.9% in the third quarter, above expectations of 3.5%, although retail sales disappointed with an increase of 2.5%.

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