Japanese stocks soar as wider markets bounce
Japanese stocks have jumped at the open, underpinning a recovery across battered Asian share markets and even triggering circuit breakers in some, after central bank officials said all the right things to soothe investor nerves.
The Nikkei soared more than eight per cent to above 34,000 in the opening minutes of trading on Tuesday, rebounding sharply from its 31,458 close on Monday. The index had plummeted 12.4 per cent in its worst selloff since the 1987 Black Monday crash.
Wall Street also looked steadier with S&P 500 futures rebounding 0.9 per cent in early trade, while Nasdaq futures rose 1.2 per cent. The S&P 500 had lost 3.00 per cent over Monday, with the Nasdaq Composite down 3.43 per cent.
“After the breathtaking and historic moves seen across Asian markets yesterday, driven predominantly by a significant liquidation of margin positions, we look for a solid counter rally on open today,” said Chris Weston, head of research at broker Pepperstone.
However, he cautioned that the level of implied volatility for the Nikkei was at a stratospheric 70 per cent, suggesting fireworks were likely for some time yet.
“After such a furious shake-out of leveraged positioning, with Japanese banks absolutely taken to the cleaners, it will take the bravest of investors to buy with any conviction.”
Currencies also seemed to be reversing some of Monday’s sharp moves, as the dollar edged up to 145.64 yen, having sunk 1.5 per cent on Monday to as deep as 141.675. The yen has shot higher in recent sessions as investors were squeezed out of carry trades, where they borrowed yen at low rates to buy higher yielding assets.
The dollar pared its losses on the safe-haven Swiss franc, holding at 0.8546 francs from a low of 0.8430.
Treasury yields had also come off their lows, in part in reaction to a rebound in the US ISM services index to 51.4 for July. In particular, it employment index jumped five points to 51.1, suggesting last week’s payrolls report may have overstated the weakness in the labour market.
“Gauging the bottom of such historic selloffs is complicated and investors will most likely remain cautious before pouring capital back into equity markets,” said Boris Kovacevic, Austria-based global macro strategist at payments firm Convera.
“However, the dollar-yen pair has now fallen 12 per cent since peaking five weeks ago and is in highly oversold territory. The yen is therefore vulnerable to any upside surprises in US macro data leading investors to reconsider the recession trade. This would help Japanese equities stabilise,” he said.
Yields on 10-year Treasury notes were back at 3.84 per cent, having been as low as 3.667 per cent at one stage.
Federal Reserve officials did their best to reassure markets with Fed San Francisco President Mary Daly saying it was “extremely important” to prevent the labour market tipping into a downturn.
Daly added that her mind was open to cutting interest rates as necessary and policy needed to be proactive.
The comments underpinned market expectations that the Fed would cut by 50 basis points at its September meeting, with futures implying an 87 per cent chance of such an outsized move.
The market has around 115 basis points of easing priced in for this year, and a similar amount for 2025.
In precious metals, gold failed to get a safe haven bid amid talk investors were taking profits to cover losses elsewhere. Spot gold stood at $US2,409 ($A3,709) an ounce after losing 1.52 per cent overnight.
In energy markets, oil prices bounced early Tuesday as news that several US personnel were injured in an attack against a military base in Iraq stoked fears of a wider conflict.
US West Texas Intermediate crude futures CLc1 climbed $US1.18, or 1.6 per cent, to $US74.12 per barrel.
#Japanese #stocks #soar #wider #markets #bounce