Global stocks steady while yen slips in calm before U.S. data

[August 12, 2024]  By Harry Robertson and Wayne Cole

LONDON/SYDNEY (Reuters) -European stocks and U.S. futures held steady on Monday, while the yen slipped as a holiday in Japan removed one source of recent volatility, and investors looked ahead to U.S. and Chinese economic data.

Stock markets tumbled on Monday last week, driven by a plunge in Japan, on the back of weak U.S. jobs numbers and the unwinding of a highly popular Japanese yen trading strategy.

Yet some stronger-than-expected U.S. data helped allay fears of a global slowdown and stocks recovered almost all of their losses by Friday.

Markets were calmer on Monday with Europe's STOXX 600 index down 0.1% after finishing last week 0.3% higher. Germany's DAX indexGDAXI> was flat and Britain's FTSE 100 was up 0.3%.

Investors were looking ahead to U.S. consumer price index data for July on Wednesday, which is expected to show month-on-month inflation ticked up to 0.2% after a minus 0.1% reading in June. Retail sales data is due on Thursday.

"Its a pretty benign expectation," said Timothy Graf, a senior macro strategist at State Street. "Inflation is really not the problem it once was."

"The balance of risks is that policy has been too tight for too long. Now you're starting to see that show up in the labour market."

Futures for the U.S. S&P 500 ticked up 0.1%. The index ended broadly flat for the week on Friday, recovering from a 3% drop on Monday.

Japan's yen slipped, with the dollar up 0.5% at 147.30 yen. The dollar index was little changed at 103.21 as the euro and pound traded flat.

MUCH QUIETER

A sharp rally in the Japanese currency in July and August has wrong-footed investors, forcing them to unwind so-called carry trades in which they borrow in Japanese yen to buy dollars and other currencies to invest in higher-yielding assets.

Data on Friday showed that leveraged funds - typically hedge funds and various types of money managers - closed their positions in the yen at the quickest rate since March 2011.

The Nasdaq Market site is seen in New York City, U.S., March 26, 2024. REUTERS/Brendan McDermid/File Photo

"It has been a much quieter start to this week than last week," said Lee Hardman, currency strategist at MUFG.

"The sharp reduction in short yen positions held by leveraged funds ... has likely provided some reassurance as well that the unwind of yen-funded carry trades is now more complete."

Japanese markets were closed for a holiday on Monday, leading to a calm Asia session which saw MSCI's non-Japan Asia stock index tick 0.41% higher.

China issues figures on retail sales and industrial production on Thursday, which are expected to show the economy continuing to underperform, potentially exacerbating some investors' fears about global growth.

The yield on the 10-year Treasury note, which sets the tone for borrowing costs around the world, was little changed at 3.947% after climbing 15 bps last week in its biggest rise since April. Yields move inversely to prices.

Oil prices inched up, having bounced 3.5% last week as fears of a widening Middle East conflict threatened supplies. [O/R]

Israeli Defense Minister Yoav Gallant spoke on Sunday with U.S. Defense Secretary Lloyd Austin and told him Iran's military preparations suggest Iran is getting ready for a large-scale attack on Israel.

Brent gained 0.5% to $80.08 a barrel, while U.S. crude rose 0.8% to $77.43 per barrel.

(Reporting by Harry Robertson in London and Wayne Cole in Sydney; Editing by Jacqueline Wong and David Holmes)

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