Aug 7 2024: European and Asian stock markets experienced gains on Wednesday, driven by a rebound in the Nikkei and a sharp decline in the yen, following the Bank of Japan’s (BOJ) unexpected caution on future rate hikes amid ongoing market volatility.
The broad Stoxx 600 index in Europe increased by 1.3%, and Nasdaq futures were up 1.2%, recovering from earlier declines caused by a 12% drop in shares of AI company Super Micro Computer (NASDAQ
), which missed earnings estimates.
Investor sentiment was shaky in Asia initially, but BOJ Deputy Governor Shinichi Uchida’s speech reassured markets. Uchida stated that the central bank would avoid raising interest rates during periods of financial instability, which supported risk assets. This led the Nikkei to rise by 1.19% after a 10% rally on Tuesday, following a 13% drop on Monday.
In currency markets, the dollar surged 1.85% to 147.03 yen, moving away from its recent low of 141.675 yen, though it remains well below its peak of 161.96 yen in July. The yen’s volatility has been attributed to its rapid appreciation, which has forced investors to unwind carry trades where they had borrowed in yen to invest elsewhere.
Market analysts suggest that the recent volatility may not signal prolonged market instability. Tim Graf, head of macro strategy for Europe at State Street Global Markets, noted that the market did not experience some typical crisis indicators, such as tighter interbank funding rates or significant declines in gold and commodities.
Earnings reports also impacted European markets, with banking stocks among the top gainers, rising 2.4%, while Novo Nordisk (NYSE
), Europe’s largest company by market capitalization, saw its shares fall 3.6% following weaker-than-expected second-quarter profits.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.8%.
With reduced demand for safe-haven assets, government bond yields rose. U.S. 10-year yields increased by 5 basis points to 3.939%, recovering from Monday’s low of 3.667%. The German 10-year Bund yield rose nearly 10 basis points to 2.28%, moving away from Friday’s low. Two-year Treasury yields climbed to 4.008% from a trough of 3.654%, as expectations for an emergency rate cut by the Federal Reserve were scaled back.
Economic data indicating solid growth also eased recession fears. The Atlanta Fed’s GDPNow estimate shows an annual growth rate of 2.9% for the current quarter.
In commodity markets, gold prices edged up by 0.5% to $2,401 per ounce, though they remain below last week’s high of $2,477. Oil prices were volatile but gained during European trading. Brent crude rose 2.24% to $78.19 per barrel, while U.S. crude increased by 2.3% to $74.87 per barrel, driven by concerns over potential supply disruptions in the Middle East.
