Commodities seem to be stabilizing, crypto is down
Asian markets rose, Japan’s BoJ rate hike caused market volatility but the Nikkei rebounded 12%. U.S. stocks rebounded, & oil gained.
Japan
Japan’s financial markets faced significant volatility last week following an unexpected interest rate hike by the Bank of Japan (BoJ), which raised rates from 0.1% to 0.25%. This policy shift disrupted an estimated $500 billion in yen-funded carry trades, causing the Nikkei 225 index to initially plummet. However, the index made a swift recovery, gaining 12% (around 5,000 points) within three days and closing 1% higher on Wednesday at 35,089.62. The yen, which had surged to a seven-month high against the dollar, rebounded by 4%, stabilizing above 147 yen per dollar.
BoJ Deputy Governor Shinichi Uchida suggested that further interest rate hikes might be delayed due to market instability, which helped calm investors. Volatility indicators, such as the VIX index in the U.S., fell sharply from a peak of 23 to near its long-term average of 19.3. Uchida’s comments reassured markets, signaling that the BoJ would maintain its current monetary easing stance for the time being.
Asian Markets
Across Asia, markets responded positively to the easing tensions in Japan. Hong Kong’s Hang Seng index rose by 1.4%, closing at 16,877.86, while the Shanghai Composite Index edged up by 0.1%. South Korea’s Kospi jumped 1.8% to 2,568.41, and Taiwan’s benchmark surged by 3.9%, reflecting a recovery in tech-heavy indices that had previously suffered losses. Australia’s S&P/ASX 200 also saw a modest increase of 0.3%, closing at 7,699.80.
Chinese trade data for July presented a mixed picture. Exports grew by 7% year-on-year, falling short of the near-10% forecast by economists, while imports exceeded expectations. Although export growth slowed to its weakest pace in three months, the better-than-expected import figures provided some relief to the markets. These figures highlighted concerns about the slowing momentum in China’s export sector, which plays a crucial role in the global economy.
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United States
The U.S. stock market rebounded after a period of heightened volatility, driven by concerns over Federal Reserve policy and the broader economic outlook. The S&P 500 gained 1% on Tuesday, following a 6% decline over the previous three days. The Dow Jones Industrial Average and Nasdaq also saw gains of 0.8% and 1%, respectively. Futures indicated continued positive momentum, with S&P 500 futures up by 1.2% and Nasdaq futures by 1.5%.
Despite fears of a rapid economic slowdown, the U.S. economy remains resilient, with many economists downplaying the likelihood of a near-term recession. Treasury yields edged higher, with the 10-year note yielding 3.93%, about 20 basis points lower than the previous week. The futures market continues to price in significant Fed rate cuts, with 41 basis points expected next month and over 100 basis points by year-end.
U.S. corporate earnings have been strong, with aggregate S&P 500 profit growth tracking at 13.7%, surpassing pre-season estimates by over two percentage points. However, some tech firms faced challenges, with Super Micro Computer’s shares dropping 14% due to margin pressures related to AI chip production costs. Conversely, Uber outperformed, with shares rising 5% after reporting better-than-expected earnings.
European Markets
European markets also rallied, buoyed by better-than-expected economic data and corporate earnings. Germany’s DAX rose by 1.2% to 17,564.39, supported by an increase in factory output that offset weaker-than-expected export figures. France’s CAC 40 gained 1.4%, closing at 7,230.21, while London’s FTSE 100 climbed 0.9% to 8,089.70. The Stoxx Europe 600 index advanced by 1.5%, driven by a mix of positive corporate earnings and broader market optimism.
Not all companies fared well in Europe. Danish pharmaceutical giant Novo Nordisk saw its shares decline after lowering its full-year profit outlook due to weaker sales of its weight-loss drug, Wegovy. German companies like Commerzbank and Puma also faced pressure following disappointing earnings reports. On the other hand, Dutch lender ABN Amro saw its shares rise after upgrading its outlook on lending income, reflecting the benefits of Europe’s higher interest rate environment.
Commodities
Oil prices increased as global markets stabilized, with West Texas Intermediate (WTI) crude rising by 1.6% to $74.34 per barrel and Brent crude, the international benchmark, climbing to $76.84 per barrel. The uptick in oil prices reflects ongoing concerns about potential supply disruptions and a cautiously optimistic outlook on global demand.
Copper prices faced downward pressure, heading for their lowest close since March. This decline was driven by a surge in stockpiles, which increased at the fastest rate in four years, highlighting weak demand in Asia, particularly in China.
Currencies Markets
Currency markets were significantly influenced by the Bank of Japan’s recent actions. The yen weakened by more than 2% against the dollar, falling to 147.21 yen per dollar following the BoJ’s dovish signals. This decline supported higher-yielding currencies, with the Mexican peso gaining over 1% against the dollar, while the Australian and New Zealand dollars also advanced.
The euro dipped slightly, falling to $1.0913, while the British pound gained 0.2% to reach $1.2715. In the cryptocurrency market, Bitcoin rose by 1.4% to $57,385.11, and Ether increased by 1% to $2,514.43, reflecting a broader recovery in risk assets as market volatility eased.
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