(Bloomberg) — Japanese stocks led declines in Asian equity markets Thursday, extending the volatile trading of the past week as investors digest signals from central banks on the path ahead for interest rates.
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The Topix Index opened lower alongside benchmarks in Australia and South Korea. US futures also fell in early Asian trading Thursday after the S&P 500 and Nasdaq 100 dropped on Wednesday. The yen rose, having dropped 1.6% on Wednesday.
A summary of opinions from Bank of Japan’s board members for its July decision showed that one member said timely interest rate increases were needed to avoid rapid hikes, and that one said normalization shouldn’t be an end in itself.
Last week’s BOJ rate increase, combined with soft US data that supported the case for Federal Reserve cuts, triggered a rally in the yen and a selloff in Japanese stocks that rippled across markets. By Wednesday, the BOJ’s deputy governor warned the central bank would hold off on further hikes until markets calmed.
The unwinding of the yen carry trade, spurred by the BOJ’s hawkish stance last week, has since eased, according to Quincy Krosby at LPL Financial.
“Markets globally have felt a sigh of relief as the velocity of the unwinding eases, but the yen’s relationship to the dollar is also a key component of the carry trade calculus,” she noted. “A softer dollar, driven by the markets perception that the Fed will soon initiate an easing cycle, should help support a stronger yen — a negative for the trade.”
US Treasury yields fell Thursday, paring Wednesday’s gains that were in part linked to lackluster demand for a 10-year auction. Treasuries also came under pressure as 17 blue-chip companies offered $31.8 billion of debt, the highest amount of US investment-grade issuance this year.
The auction result is “consistent with our view that we’re due for a continued correction higher in yield in the near-term,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. “The repricing following what was really just a moderately weak payrolls report seems way overdone.”
Australian and New Zealand bonds fell early Thursday.
US Markets
The S&P 500 closed 0.8% lower as Nvidia Corp. led losses in megacaps. Super Micro Computer Inc. tumbled 20% on disappointing earnings. In late trading, Warner Bros. Discovery Inc., the parent of CNN and TNT, plunged after posting a charge of $9.1 billion as it wrote down the value of its traditional TV networks.
Markets have been in a tailspin since last week’s economic data fueled worries that the Federal Reserve’s decision to hold rates at a two-decade high is risking a deeper economic slowdown.
JPMorgan economists now see a 35% chance that the US economy tips into a recession by the end of this year, up from 25% as of the start of last month.
“Stocks remain vulnerable,” said Fawad Razaqzada at City Index and Forex.com. “More evidence of a bottom is needed to excite the bulls again. Overall, sentiment remained cagey. Not many people were confident to buy this latest dip, especially with US CPI looming next week.”
Oil climbed as investors remained on edge over the possibility of a retaliatory strike from Iran on Israel. Gold was little changed early Thursday after five sessions of declines.
Key events this week:
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Germany industrial production, Thursday
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US initial jobless claims, Thursday
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Fed’s Thomas Barkin speaks, Thursday
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China PPI, CPI, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.4% as of 9:07 a.m. Tokyo time
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Japan’s Topix fell 1.3%
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Australia’s S&P/ASX 200 fell 0.2%
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Euro Stoxx 50 futures rose 2.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0927
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The Japanese yen rose 0.3% to 146.18 per dollar
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The offshore yuan rose 0.1% to 7.1642 per dollar
Cryptocurrencies
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Bitcoin rose 0.2% to $55,263.96
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Ether was little changed at $2,349.72
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
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