Stocks rebound continues, yen slumps after BOJ talks down rate hikes

[August 07, 2024]  By Wayne Cole and Alun John

SYDNEY/LONDON(Reuters) -European and Asian share markets rose on Wednesday, led by another bounce in the Nikkei, as the Bank of Japan unexpectedly turned cautious on rate hikes amidst market volatility, inducing a sharp fall in the yen.

Europe's broad Stoxx 600 index rose 0.8% in early trading, and Nasdaq futures were up 0.9%, having edged lower earlier in the day on a 12% dive in AI darling Super Micro Computer after it missed earnings estimates. [.N]

The Nikkei's 1.2% rise followed Tuesday's 10% rally, suggesting investors were finding their footing after the recent market rout. The index slumped 13% on Monday.

Sentiment had looked a little shaky early in Asia, but Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said in a speech to business leaders the central bank will not raise interest rates when financial markets are unstable, boosting risk assets.

The dollar jumped 1.8% to 146.84 yen and away from the 141.675 trough hit on Monday, though it remains far below its July peak of 161.96. [FRX/]

The Japanese currency is very closely watched at present because its rapid appreciation has been blamed, in part, for the turbulence across global markets, as its rally forced investors to unwind carry trades in which they had borrowed cheaply in yen to invest in higher performing assets elsewhere.
 

And the sense is building across investors and analysts that the swings in markets, which reached their peak on Monday when global share benchmarks plunged, do not prefigure more sustained moves.

"I think you need to look at what didn't happen on Monday to get a sense of where this fits relative to other big periods of volatility, ... in other crises you'd see the market for interbank funding get a lot tighter, and that didn't happen, gold didn't perform, and commodities didn't collapse," said Tim Graf, head of macro strategy for Europe at State Street Global Markets.

"For me this was a very extreme position washout taking place against the backdrop of lightly staffed trading desks and low liquidity, but it was nothing worse than that."

"From here I think we start to reverse some of those moves though not in full, I don't think you're going to see dollar/yen back at the highs at which it was."

In Europe, banking stocks, which have taken a bruising in recent days, were among the top gainers, up 1.6%, and Novo Nordisk, Europe's largest company by market cap, caught the eye falling 3.3% after reporting weaker-than-expected second quarter profits. [.EU]

 Pedestrians walk past an electronic board showing the graphs of the recent fluctuations of Japan's Nikkei average outside a brokerage in Tokyo, Japan, February 9, 2016. A drop in bank shares kept European shares under pressure on Tuesday, after losses in Asian markets sent investors scurrying for safe havens. REUTERS/Yuya Shino/File Photo

Earlier in the day, MSCI's broadest index of Asia-Pacific shares outside Japan jumped 1.8%.

With safe-haven in less demand, government bond yields rose. U.S. 10-year yields rose 5 basis points to 3.935%, and well off Monday's low of 3.667%, and the yield on the German 10 year Bund rose 9 bps to 2.275%, now nearly 20 bps of Friday's low. [GVD/EUR]

Two-year Treasury yields climbed back to 4.028%, from a deep trough of 3.654%, as markets scaled back wagers on an intra-meeting emergency rate cut from the Federal Reserve.

Futures now imply 105 basis points of easing this year, compared with 125 basis points at one stage during Monday's turmoil, while a 50-basis-point cut in September was seen as a 73% chance.

Fears of an imminent U.S. recession had also faded a little as the run of economic data still pointed to solid economic growth in the current quarter.

The Atlanta Fed's much-watched GDPNow estimate is that gross domestic product is running at an annual pace of 2.9%.

In commodity markets, gold prices also turned higher, up 0.1% at $2,391.00 an ounce and short of last week's $2,477 top.[GOL/]

Oil prices remained volatile as concerns about waning global demand warred with the risk of supply disruptions in the Middle East. [O/R]

Brent rose 0.4% to $76.83 per barrel, while U.S. crude was also up 0.5% to $73.58 a barrel.

(Reporting by Wayne Cole and Stella Qiu in Sydney, and Alun John in London; Editing by Jacqueline Wong and Andrew Cawthorne)

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