Fed worries stocks worries, yen rises on Japan intervention hint

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LONDON (Reuters) – Global stocks were stuck in a sea of ​​red on Wednesday as markets braced for a more aggressive US Federal Reserve, with inflation roaring and the yen jumping as Japan gave the strongest signal yet that it might act. Support the mined currency.

The yen rose more than 1%, moving away from 24-year lows against the dollar, after a report that the Bank of Japan conducted an interest rate check in apparent preparation for currency intervention. Read more

Meanwhile, US data released on Tuesday showing core inflation expanding globally reverberated. Read more

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European stocks (.stoxx) It fell 0.3%, down more from its nearly three-week highs hit the day before, and London’s FTSE fell as much as 1% even though data showed British inflation unexpectedly fell in August. Read more

In Asia, Japan’s Nikkei Index (.N225) The MSCI Index is down 2.6% and the broadest MSCI Asia Pacific Index outside Japan (MIAPJ0000PUS.) It fell 2.2%. US stock futures were mixed a day after Wall Street’s biggest drop in two years.

“The Fed has to go further and there is an understanding that the peak rate will now be above 4%,” said Sima Shah, chief strategist at Principal Global Investors.

“There was a feeling that inflation was moderate but the data shows how stable inflation is and that requires the Fed to step up the pace.”

All money market prices are in for a rate hike of at least 75 basis points at next week’s Fed policy meeting, with a 38% probability of a full percentage point increase in the Fed funds target rate, according to CME’s FedWatch tool.

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The probability of a 100 basis point rise was zero before Tuesday’s inflation data.

Those expectations kept upward pressure on US Treasury yields, with two-year bond yields rising to a 15-year high of 3.804% in London trading.

intervention hour

The dollar has been boosted by expectations of further sharp interest rate hikes, causing concern from major central banks that have seen their currencies weaken as it drives up imported inflation.

But the yen rose more than 1% to around 143 per dollar on a report that the Bank of Japan conducted an interest rate check in a clear readiness for currency intervention.

Earlier, Japanese Finance Minister Shunichi Suzuki said currency intervention was among the options the government would consider. Read more

The last time Japan intervened to prop up its currency was in 1998, when the Asian financial crisis caused a sell-off of the yen and rapid capital outflows.

“Using decoding may help slow the pace of the yen’s decline but is unlikely to change direction unless US and Australian dollar yields decline decisively or the Bank of Japan changes policy,” said Christopher Wong, currency strategist at OCBC.

While the major central banks have been raising interest rates, the Bank of Japan remains the dismissive pigeon and this year has stuck to its very easy stance on monetary policy.

Elsewhere, oil prices were little changed, with US crude at $87.41 a barrel and Brent crude at $93.20. Spot gold was trading at $1,705 an ounce, up about 0.2%.

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Reporting by Dara Ranasinghe. Additional reporting by Stella Keough in Sydney; Editing by Andrew Cawthorne

Our criteria: Thomson Reuters Trust Principles.

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