Stock Markets Recover, Lose Momentum as Yen Rises Again: Market Report

(Bloomberg) — A rally in Japanese stocks lost steam after the yen resumed its rise, threatening a nascent recovery in global equity markets that’s been supported by signs of resilience in the U.S. labor market.

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The Topix index’s gains narrowed to 0.6 percent from about 2 percent earlier, after the Japanese currency erased losses to strengthen against the dollar. A stronger yen reduces the strength of the country’s stocks as the competitiveness of Japanese exports erodes.

Elsewhere in Asia, stocks from Australia to South Korea and Hong Kong held on to gains, tracking a strong performance on Wall Street. Chinese shares steadied after earlier gains as perceptions grew that better-than-expected inflation was mainly due to seasonal factors such as weather.

Euro Stoxx 50 futures rose, while U.S. futures were flat. The dollar fell, and Treasury yields fell after three days of gains.

A stronger yen threatens to undermine a full recovery in risk appetite after the recent global meltdown. This came as the U.S. jobless claims report helped ease recession fears triggered by worse-than-expected employment data last week. Focus will now shift to a fresh batch of U.S. economic indicators due next week, including consumer prices.

Various signals from U.S. central bank officials could prompt investors to be cautious. Kansas City Federal Reserve President Jeffrey Schmid indicated he was not prepared to support interest rate cuts as inflation rises above target, according to comments he made in the United States on Thursday.

Swap traders have also pared their bets on an aggressive Fed rate cut in 2024. The global repricing has been so sharp that interest-rate swaps were at one point implying a 60% chance of an emergency Fed rate cut next week — well ahead of its next scheduled meeting in September. Current rates imply about 40 basis points of cuts in September.

The yen’s recent gains came after the Bank of New York said the unwinding of yen-funded trades had more room to run and that the Japanese currency could rise toward 100 against the dollar over time. Meanwhile, JPMorgan Chase & Co. strategists joined their counterparts at UBS Group AG in cutting year-end targets for Japan’s major stock indexes due to the yen’s strength.

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Oil prices steadied after rising on Thursday on rising tensions in the Middle East, while gold fell.

Meanwhile, Canadian steel and aluminum producers are urging Prime Minister Justin Trudeau’s government to quickly impose new tariffs on Chinese products, saying metals from the Asian powerhouse are flooding the Canadian market and threatening local jobs.

Main events this week:

Some key movements in the markets:

Stocks

• S&P 500 futures were down 0.2% as of 2:11 p.m. in Tokyo.

• Nasdaq 100 futures fell 0.3%.

• Japan’s Topix index was little changed.

• Australia’s S&P/ASX 200 rose 1%

• Hong Kong’s Hang Seng Index rose 1.4%.

• The Shanghai Composite Index was little changed.

• Euro Stoxx 50 futures were little changed.

Currencies

• The Bloomberg Dollar Index fell 0.2%.

• The euro was little changed at $1.0921.

• The Japanese yen rose 0.3% to 146.86 yen per dollar.

• The offshore yuan rose 0.2% to 7.1688 against the dollar.

Cryptocurrencies

• Bitcoin rose 2.3% to $60,881.85

• Ether price rose 3.7% to $2,665.34

Bonds

Goods

• West Texas Intermediate crude was little changed.

• Spot gold fell 0.2 percent to $2,422.73 per ounce.

This story was produced with the help of Bloomberg Automation.

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