Treasuries advance as traders weigh size of Fed tapering: markets tight

(Bloomberg) — Treasuries rose and the dollar fell after fresh U.S. data left investors guessing about the size of an expected rate cut from the Federal Reserve next week.

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The policy-sensitive two-year Treasury yield fell six basis points and the dollar retreated 0.3 percent, falling for a third day. The Stoxx 600 rose 0.5 percent, with Danish shares hitting a record high for the first time since November 2021. U.S. futures indicated modest gains.

Investors remain divided on the extent of the Fed’s anticipated pivot to policy easing starting next week’s meeting. The debate continued after data on Thursday showed the US producer price index rose slightly in August after the previous month’s figures were revised lower. Meanwhile, a surge in jobless claims has renewed concerns about a weakening labor market.

“If I were in the room, I would actually push for a 50 basis point cut instead of a 25 basis point cut,” Evercore Chairman Emeritus Ralph Schlosstein said in an interview with Bloomberg TV. “The balance of risks has shifted from a risk that inflation will not fall as we hope to a risk that unemployment will rise faster than we would hope.”

Traders are now betting on 33 basis points of Fed cuts on September 18, up from 31 basis points on Thursday and 26 basis points on Wednesday.

His view echoed that of former New York Fed President William Dudley, a Bloomberg Opinion columnist and adviser and chairman of the Bretton Woods Committee. “I think there is a strong case for 50,” he said in Singapore on Friday. “I know what I would push for.”

Thursday’s wholesale inflation data followed the more closely watched consumer price index, which showed that core inflation accelerated in August. However, policy makers have made it clear that they are currently very much focused on the soft labor market, which is more likely to drive policy discussions in the coming months.

Key events this week:

• Industrial production in the euro area, Friday

• Industrial production in Japan on Friday

• U. Michigan Consumer Sentiment Friday

Some of the main movements in the markets:

Stocks

• The Stoxx Europe 600 was up 0.5 percent as of 9:18 a.m. London time

• S&P 500 futures rose 0.1%

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average were little changed

• MSCI Asia Pacific index rose 0.5%

• MSCI Emerging Markets index rose 0.5%

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Coins

• The Bloomberg Dollar Spot Index fell 0.3%

• The euro rose 0.2% to $1.1092

• The Japanese yen rose 0.9 percent to 140.61 per dollar

• The offshore yuan rose 0.3 percent to 7.0975 per dollar

• Sterling rose 0.1% to $1.3140

Cryptocurrencies

• Bitcoin fell 0.3% to $58,043.87

• Ether was down 0.2% at $2,347.98

BONDS

• The 10-year Treasury yield fell five basis points to 3.63%

• Germany’s 10-year yield fell three basis points to 2.12%

• Britain’s 10-year yield fell three basis points to 3.76%

• The 2-year Treasury yield fell six basis points to 3.58%

commodities

• Brent crude rose 0.5% to $72.32 a barrel

• Spot gold rose 0.4% to $2,568.62 an ounce

This story was produced with the help of Bloomberg Automation.

–With assistance from Sybilla Gross, Richard Henderson and Divya Patil.

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