Tuesday Aug 13 2024 13:36
5 min
Japanese shares in the Nikkei 225 index rallied on Tuesday, driving global stocks higher ahead of a crucial week of economic data — including U.S. inflation figures that could shed light on the Federal Reserve's future policy direction following last week's market volatility.
Oil prices eased after a 3% surge on Monday, as investors closely monitored the potential for an escalating conflict in the Middle East that could disrupt global crude supplies.
Europe's STOXX 600 index gained 0.3%, with investors remaining cautious ahead of the release of U.S. producer price data later in the day.
Japan's Nikkei 225 index surged more than 3% after a holiday on Monday, providing a reprieve from last week's turbulent market swings, which were triggered by a rising yen and concerns over a potential U.S. recession. The Nikkei 225 index is up over 8% so far this year.
The MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.15% to 556.55. Meanwhile, Chinese stocks dipped slightly, while Hong Kong's Hang Seng Index inched up by 0.1%.
U.S. markets appeared poised to continue the cautiously optimistic trend, with S&P futures advancing 0.47% and Nasdaq futures rising 0.72%.
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In a report cited by Reuters, Viktor Shvets, head of global desk strategy at Macquarie Capital, noted that his firm saw the recent volatility as temporary:
"While aftershocks might reveal vulnerabilities, we continue to view recent volatility as being an equivalent of a 'heart palpitation' not a 'cardiac arrest'. We also maintain that the nervousness about a US slowdown is overdone”.
The Japanese yen fell 0.42% to 147.855 per dollar on Tuesday, having previously touched seven-month high of 141.675 it reached last Monday — and a far cry from the 38-year lows of 161.96 seen at the beginning of July.
A surprise rate hike by the Bank of Japan last month, following intervention efforts by Tokyo earlier in July, caught investors off guard and prompted a swift exit from popular carry trades, which involve borrowing in low-interest currencies to invest in higher-yielding assets.
Recent data through August 6 revealed that leveraged funds, including hedge funds and various money managers, have been closing their yen positions at the fastest pace since March 2011.
Given the yen's recent strength, the dollar-yen exchange rate is now more aligned with its yield differential, according to Karsten Junius, chief economist at Bank J. Safra Sarasin, who was cited by Reuters as saying:
“Another wave of the yen-funded carry trade unwind will likely push the yen still somewhat higher towards year-end. Yet we do not expect USD-JPY to fall meaningfully below 140”.
This week's data releases could sharpen views on the Federal Reserve's next steps. Market expectations are currently split between a 25 basis-point cut or a 50-basis-point cut at the Fed's September meeting.
Traders are currently pricing in a total of 100 basis points in rate cuts for this year.
The market turmoil at the start of last week was triggered by surprisingly soft payroll data, but stronger U.S. data since then has alleviated fears of a slowdown.
U.S. producer price data for July is due later on Tuesday. Any signs of easing inflation could lead to increased bets on aggressive Fed rate cuts this year, which would likely weigh on the dollar, according to comments from Kristina Clifton, senior economist at Commonwealth Bank of Australia.
On Wednesday, the U.S. consumer price index (CPI) data for July is expected to show a slight month-on-month increase of 0.2%. Retail sales data will follow on Thursday.
The dollar index, which measures the U.S. currency against six major peers, edged up 0.08% to 103.17. The euro held steady at $1.0940, while the British pound rose 0.1% to $1.2778.
In the commodities market, Brent crude futures eased 0.5% to $81.88 per barrel, while U.S. West Texas Intermediate crude futures dipped 0.46% to $79.59 per barrel. This follows Brent's more than 3% gain on Monday and a more than 4% rise in U.S. crude futures.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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