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MORNING BID AMERICAS-Japan, China rein in buck as quarter nears end

Credit: REUTERS/MIKE SEGAR

A look at the day ahead in U.S. and global markets from Mike Dolan

A holiday-shortened final week of the quarter started with a whimper in financial markets, with the buoyant dollar knocked by concern about Japanese and Chinese action to shore up the listing yen JPY and yuan CNH=.

As the Easter break in most western markets appears in view, investors can look back at a pretty buoyant first quarter that's seen Wall St stocks set new records and gains broaden out beyond a handful of megacap tech names to other sectors and also around the world.

While the S&P 500 .SPX and Nasdaq .IXIC are both up more than 10% for the year to date, the equal-weighted S&P500 .EWGSPC - which adjusts for the impact of giant stocks such as the 'Magnificent Seven' megacap tech leaders - is also up 6%. Japan's Nikkei .N225 is up 13%, while MSCI's all-country index .MIWD00000PUS has gained more than 7%.

The spluttering of some of the Big Tech leaders this year amid mounting antitrust moves on both sides of the Atlantic only serves to underline the impressive gains of broader indexes.

Last week's sweep of central bank meetings seem to have convinced everyone interest rate cuts are coming by the end of the second quarter and overseas policymakers will at least match the Federal Reserve blow for blow - speculation that lifted the dollar .DXY across the board last week.

China's renminbi was a notable casualty on Friday as the offshore yuan CNH= skidded to a 2024 low. But suspected selling of dollars by state-owned banks on Monday and a strong official guidance from the country's central bank seems to have steadied the ship, even though the offshore unit is still almost 0.5% weaker than Thursday's close.

In Japan too - where the Bank of Japan ended its negative interest rate policy last week - the sliding yen seems to have found a foothold just under 152 per dollar JPY= as traders grow wary of official intervention on further sharp losses.

Japan's top currency diplomat Masato Kanda said on Monday the yen's current weakness did not reflect fundamentals, seemed somewhat speculative and nothing would be ruled out if moves got out of hand. "I feel something strange about it," he said.

The overall tone seemed to dampen stock markets in Asia on Monday, with the Nikkei slipping back 1% and Chinese stocks off too. European stocks and Wall St futures were a little steadier.

CALMER RATE, BOND MARKETS

Interest rate and bond markets seemed calm, with Treasury yields US10YT=RR hovering around Friday's close. That's even as Atlanta Fed boss Raphael Bostic sent a hawkish note late Friday by saying he now expects just a single quarter-point interest rate cut this year instead of the two he had projected earlier, citing persistent inflation and strong economic data.

The big economic report of the week is Friday's release of the Fed's favored PCE inflation gauge for February - but Wall St stock exchanges will be closed for Good Friday and won't get a chance to react until next week.

And there was relief that another threatened government shutdown was averted over the weekend - and the issue put aside for six months. With two-year notes under the hammer again later on Monday, the main Treasury market volatility index .MOVE has fallen to its lowest in more than two years.

Congress early on Saturday overwhelmingly passed a $1.2 trillion budget bill, keeping the government funded through a fiscal year that began six months ago. Key federal agencies including the departments of Homeland Security, Justice, State and Treasury, which houses the Internal Revenue Service, will now remain funded through Sept. 30.

Elsewhere in domestic politics, former U.S. President Donald Trump faces a Monday deadline to post a bond covering a $454 million civil judgment against him in a New York state case, after a judge found he had overstated the value of his assets.

And in geopolitics, President Joe Biden and Japanese Prime Minister Fumio Kishida will agree next month to tighter military cooperation, including talks on the biggest potential change to Washington's East Asia command structure in decades.

Key diary items that may provide direction to U.S. markets later on Friday:

* US Feb new home sales, Dallas Fed March manufacturing survey, Chicago Fed Feb business survey

* Federal Reserve Board Governor Lisa Cook and Atlanta Fed President Raphael Bostic speaks. Bank of England policymaker Catherine Mann speaks

* US Treasury sells 2-year notes, 3- and 6-month bills

Wall St's strength broadens https://reut.rs/3TRaLHi

PCE inflation expected to have gained in February https://reut.rs/3x3olOB

Fed's improving view of an election year https://reut.rs/3vqtIXS

U.S. consumer sentiment by party affiliation https://reut.rs/3ObUtp4

Yen slide has markets on intervention watch https://tmsnrt.rs/3VscEv6

(Editing by Bernadette Baum)

((mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters Messaging: mike.dolan.reuters.com@thomsonreuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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