Equity futures across the US and Europe dipped Wednesday, with bonds climbing on growing concerns about an economic slowdown.
The Japanese yen (JPY) surged after a Bank of Japan official hinted at further interest rate hikes.
Asian stocks dropped for a third straight session, with Japan and Hong Kong leading the declines.
US futures fell 0.6%, while global bond yields hit a two-year low.
Investors braced for a pivotal US consumer price index (CPI) report, with the Federal Reserve’s policy decision hanging in the balance next week.
The market remains clouded by concerns over China’s slowing economy and worries that the Federal Reserve might have delayed too long in adjusting its monetary stance.
Some traders are betting on at least one significant rate cut this year, depending on how inflation data plays out.
The yen hit its strongest level against the dollar since December, wiping out year-to-date losses.
This followed comments from BOJ policy member Junko Nakagawa, who reinforced the bank’s readiness to raise rates if necessary, signaling a potential policy shift that could come sooner than expected.
Economists, however, anticipate the central bank will wait until December or January before making its next move.
Nakagawa’s statement stirred speculation that the BOJ may accelerate its rate hike timeline, propelling the yen higher.
Shoki Omori from Mizuho Securities noted that her comments, coupled with political uncertainty in the US, were shaking the market.
Adding to the tension, traders in the US options market continue to anticipate a 50 basis-point cut from the Fed this year, though it’s unlikely to happen before the November election.
The upcoming inflation report will be key, with a hotter reading expected to bring volatility.
However, a softer number could signal a faster-than-expected economic slowdown, presenting a double-edged sword for investors.
Oil markets also saw turbulence. West Texas Intermediate crude rebounded on Wednesday, after plunging nearly 5% the previous day.
It’s been a tough quarter for crude, which has dropped by almost 20% amid fears that weaker demand from the US and China could outpace supply growth.
As uncertainty looms, market sentiment remains fragile, with business leaders and investors closely watching the Fed and CPI data.
The path ahead is clouded, but one thing’s for sure — the winds of change are blowing.
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