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Dollar Weakens Before BOJ,Energy Stocks Decline with oil

Aabb

The dollar slipped versus most of its major peers ahead of Wednesday policy decisions by the Bank of Japan and the Federal Reserve. Energy shares fell with oil, while New Zealand’s dollar rose with milk prices.

The Bloomberg Dollar Spot Index extended Monday’s retreat from a seven-week high and the kiwi surged by the most in two weeks. Energy producers were the worst performers on both the Stoxx Europe 600 Index and the MSCI Asia Pacific Index as crude traded near $43 a barrel before U.S. stockpiles data. Japan’s Topix index advanced and the Nikkei 225 Stock Average retreated amid speculation the BOJ will switch to favoring the broader benchmark in its purchases of exchange-traded funds.

Shifting expectations regarding the outcomes of the BOJ and Fed meetings spurred volatility in financial markets over the past two weeks. A slew of weak American economic data has pushed the probability of a U.S. rate hike this week to 20 percent in the futures market, down from more than 40 percent in late August. The BOJ has been studying the effectiveness of its stimulus programs and economists are split over the likelihood of further easing on Wednesday.

“No one is prepared to take on too much risk ahead of the Bank of Japan and the Fed Open Market Committee meetings,” Chris Weston, chief market analyst in Melbourne at IG Ltd., said in an e-mail. “The key this week for me is how the Japanese and U.S. fixed-income markets react to either central bank decisions. If real bond yields start moving up it will cause a tightening of financial conditions that will not be taken well by the credit or equity markets.”

Currencies

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, fell 0.2 percent as of 8:18 a.m. London time after losing 0.2 percent in the last session. The euro appreciated 0.3 percent and the pound gained 0.2 percent.

The yen strengthened 0.4 percent to 101.57 per dollar. The BOJ should continue with both asset purchases and its negative interest rates policy, partly to prevent currency appreciation, Koichi Hamada, adviser to Prime Minister Shinzo Abe, was cited as saying in a Tokyo Shimbun report over the weekend. Any debate to cut back on the central bank’s easing program now will bring back a pre-Abenomics, deflationary age, he said.

The kiwi surged 0.8 percent, the biggest gain among major currencies, as milk futures climbed to $3,000 per metric ton ahead of a GlobalDairyTrade auction. The average price at the last auction on Sept. 6 was $2,793.

Stocks

The Stoxx Europe 600 Index declined 0.3 percent, after a 1 percent rally on Monday that marked its biggest gain in two weeks. The MSCI Asia Pacific Index was up 0.3 percent, after advancing 1.4 percent in the previous two sessions. Gauges of energy shares on the two regional benchmarks fell at least 0.6 percent.

Japan’s Topix climbed 0.4 percent as trading resumed following a holiday on Monday, while the Nikkei 225 fell 0.2 percent. Nicholas Smith of CLSA Ltd. said he’s “absolutely certain” the BOJ will stop buying exchange-traded funds tracking the Nikkei 225 amid criticism its use of the measure is distorting the market, and buy more Topix and JPX-Nikkei Index 400 ETFs instead.

“Shares have fallen to quite a low level, so it’s a good time to buy,” said Hiroyasu Iida, the head of investment research center at Aizawa securities. “There’s still exchange-traded fund buying from the BOJ, so there’s a limit to how much stocks can fall.”

Takata Corp. tumbled 12 percent in Tokyo on concern an auction of the troubled air-bag supplier may involve some form of bankruptcy proceedings to mitigate liabilities for buyers. Tokyo Steel Manufacturing Co. dropped by the most in three years after it cut prices.

Futures on the S&P 500 Index were up 0.2 percent. The U.S. has housing starts figures scheduled, while companies including FedEx Corp. and Adobe Systems Inc. are due to report earnings.

Commodities

Crude oil slipped 0.5 percent to $43.09 a barrel in New York, near a one-month low, on speculation a global glut will be sustained. Output in Nigeria is climbing after a cease-fire with militants allowed some production to restart, while U.S. stockpiles data on Wednesday after forecast to show an increase of 3.13 million barrels for last week.

Copper declined 0.1 percent in London, extending Monday’s retreat from a one-month high, while nickel and zinc gained 0.7 percent. Rio Tinto Group, the world’s second-largest mining company, said it is becoming more optimistic on the outlook for commodities demand in China after recent data pointed to a pickup in the construction market.

Gold extended Monday’s rebound from a two-week low, adding 0.3 percent.

Bonds

The rate on U.S. Treasuries due in a decade fell one basis point to 1.70 percent, after increasing by two basis points in the last session. Japan’s 10-year bond yield slipped 1-1/2 basis points to minus 0.06 percent and Germany’s slipped one basis point to 0.01 percent.

Two of the Fed’s 23 primary dealers — Barclays Plc and BNP Paribas SA — are going against the grain and betting on a surprise rate hike from the Fed on Wednesday. It’s the first time more than one dealer has gone against the consensus during the week of a policy meeting since last September, data compiled by Bloomberg show.

New Zealand’s 10-year bonds declined, as they have done on all but two days this month, and their yield climbed three basis points to 2.62 percent.

Source : Bloomberg