Nikkei May Decline Amid Concerns About Higher Energy Costs — Market Talk

1947 ET - Japanese stocks may decline as the Iran conflict continues to stoke concerns about higher energy prices. Nikkei futures are down 0.9% at 61880 on the SGX. The dollar is at 163.37 yen, compared with Y163.55 as of Wednesday's Tokyo stock market close. Investors are focusing on developments in the Middle East and crude oil prices. President Trump vowed to retaliate after Iran launched a surprise ballistic missile attack on U.S. forces in the Middle East. The Nikkei Stock Average fell 1.5% to 61434.19 on Wednesday. ([email protected])1553 ET - Treasury yields are mixed as the Fed holds interest rates unchanged with three dissenters voting for an increase. Chairman Warsh reaffirms the commitment to bring inflation down to 2%, while staying away from explicit forward guidance. Crude rallies 7% on renewed hostilities in the Middle East. Tomorrow, June PCE inflation is expected to cool, and so is 2Q GDP, according to WSJ consensus. Jobless claims are forecast to tick higher. The 10-year yield rises 0.017 percentage point to 4.621% and the more Fed-sensitive two-year falls 0.040 p.p. to 4.235%. ([email protected]; @ptrevisani)1436 ET - Mexico's economic activity likely picked up in 2Q with a positive impact on services from the soccer World Cup that the country co-hosted with the U.S. and Canada. Gross domestic product is expected to have expanded 1.3% from the previous quarter in seasonally adjusted terms, according to a WSJ survey of analysts, following a 0.6% contraction in 1Q. GDP is seen up 1.5% unadjusted from 2Q of 2025. National statistics institute Inegi is scheduled to report preliminary 2Q GDP data on Thursday. ([email protected])1420 ET - Major cryptocurrencies rise following the Federal Reserve's 9-3 vote to leave interest rates unchanged. Traders were tentative ahead of the decision in anticipation of a potential surprise rate hike supporting a stronger dollar and hitting riskier assets like cryptocurrency. Bitcoin is now up 0.8% to $64,334, while ethereum rises 0.1% to $1,919, XRP is up 2.2% to $1.09, and solana rises 0.1% to $74.10. ([email protected])1417 ET - Treasury yields and the dollar fall on the Fed's decision to keep rates steady. Markets had been mostly pricing a hold, but nearly a third of investors bet on a hike, according to fed futures markets via CME. The decision has three dissents voting for a rate increase, likely boosting odds of a September hike. Energy prices driven by the war in Iran remain a worrisome factor in monetary-policy decisions. The two-year Treasury yield, which is more sensitive to Fed moves, falls to 4.281% from 4.316% ahead of the decision. The 10-year slips to 4.627% from 4.637%. The WSJ Dollar Index is down 0.2% after trading flat earlier. ([email protected]; @ptrevisani)1402 ET - Since the June meeting, Fed officials got a lackluster June jobs report and a cooler set of June inflation numbers. The outbreak of renewed conflict in the Middle East has also pushed up energy prices in July. Despite those evolving dynamics, the Fed's July policy statement is effectively unchanged from the brief memo published after the central bank's June meeting. At the June meeting, the first led by Chairman Kevin Warsh, the Fed trimmed down its statement substantially--and the lack of a meaningful update in July emphasizes the Warsh Fed's reluctance to provide much insight into its deliberations or forward-looking expectations. ([email protected]; @mattgrossman)1344 ET - Bitcoin turns negative ahead of the Federal Reserve's decision on interest rates. Data from Deribit shows that investors are largely holding calls for expiration July 31, with the majority of calls landing around $71,000. Those holding puts are largely holding them around $60,000, which is below the near-term support levels seen for bitcoin in today's trading. Bitcoin is down 0.2% to $63,759, while ethereum falls 1.1% to $1,895 and solana drops 1.1% to $73.17. XRP is one of the few major cryptocurrencies that are managing to stay positive today, up 0.9% to $1.07. ([email protected])1258 ET - The risk of dissents from the Fed is on the rise, not only for this meeting but for ones going forward, a note from Stifel Economics says. Committee members with differing opinions were often satisfied with the inclusion of additional language in the accompanying statement, they say. "Under Warsh, with now a notably reduced statement devoid of further commentary surrounding the Fed's assessment of the economy, and especially forward guidance, Fed members may use dissents as a tool to voice differing opinions from the policy decision." ([email protected])1248 ET - Long-term U.S. government debt looks attractive at current levels, Mackenzie Investments' Dustin Reid tells WSJ. The 30-year Treasury yield is at 5.12% and he caps it at 5.25%. Reid expects bond prices to rise, pushing yields lower, as the Fed leans hawkish and the Treasury increasingly finances itself with short-term debt. Reid likes the 30-year inflation-protected bonds, which he says are "a very good value play for a medium to long-term perspective in our portfolio." The 30-year TIPS yield is at 2.95%, according to LSEG. Beyond Treasurys, "we've also added some 30-year Canadian duration, looking for yields to move lower." ([email protected]; @ptrevisani)1247 ET - Fed Chairman Warsh's tight-lipped approach to forward guidance presents a challenge for investors, says Toronto-based fixed-income strategist Dustin Reid, of Mackenzie Investments. "Position sizing counts even more when you have the expectation of higher volatility around any event, in this case FOMC," he tells WSJ. The lack of guidance means portfolio managers need to spend more time deciding whether to load up on duration, for instance. Currency hedging also becomes more complex for someone who, like him, sits outside of the U.S. ([email protected]; @ptrevisani)1246 ET - The Fed will likely hold today, with potential dissent for a hike and indications that rates will go up in September, Mackenzie Investments' Dustin Reid tells WSJ. "I think the overall communication from the Fed will lean hawkish and lean into a September hike," he says. Reid believes FOMC members will follow Chairman Warsh's call. "I think if Warsh wants a hike, if that's his central tendency that he brought to the committee yesterday, he has the votes." Reid says it is "a close call." A hawkish outcome would likely send short-term Treasury yields higher and long-term ones would outperform, he says. ([email protected]; @ptrevisani)1138 ET - Yields on long-dated U.K. government bonds, or gilts, climb, after a resumption of hostilities between the U.S. and Iran causes oil prices to rise. Thirty-year gilt yields rise to a 5-day high after Iran launched a surprise attack on American forces in Jordan on Tuesday while the U.S. attacked Iran-backed groups based in Iraq. The attacks raise concerns about prolonged conflict and the risk of high inflation, with the price of Brent crude last up more than 7% at $90.17 a barrel. U.K. 30-year gilt yields climb more than six basis points to a high of 5.733%, LSEG data show. ([email protected])