Aug 13 2024: Japanese shares surged on Tuesday, lifting broader Asian markets as investors awaited a series of economic reports this week, including U.S. inflation data, which will influence the Federal Reserve’s policy decisions following last week’s market volatility.
Oil prices eased slightly after a 3% gain on Monday, as concerns about a potential escalation in Middle East conflicts continued to impact global crude supplies. Gold, a safe-haven asset, saw some uplift but dipped slightly on Tuesday.
Japan’s Nikkei index climbed more than 3% following Monday’s holiday, offering relief after the previous week’s tumultuous trading, which was marked by a significant sell-off due to a rising yen and recession fears in the U.S.
The MSCI Asia-Pacific Index, excluding Japan, rose 0.15% to 556.55. Chinese stocks experienced a slight decline, while Hong Kong’s Hang Seng Index edged up by 0.1%.
European markets were set for a higher open, with Eurostoxx 50 futures up 0.3% and FTSE futures rising 0.26%.
Viktor Shvets, head of global desk strategy at Macquarie Capital, described the recent volatility as a minor “heart palpitation” rather than a severe “cardiac arrest,” suggesting that fears of a U.S. slowdown may be overblown.
Investor sentiment remains delicate, with the yen falling 0.34% to 147.72 per dollar. Last week, the yen touched a seven-month high of 141.675, a stark contrast to its 38-year low of 161.96 seen in early July. The Bank of Japan’s rate hike last month, combined with earlier interventions from Tokyo, led to a rapid unwinding of yen-funded carry trades.
Recent data up to August 6 revealed that leveraged funds, such as hedge funds, reduced their yen positions at the fastest rate since March 2011. Karsten Junius, chief economist at Bank J. Safra Sarasin, noted that the yen’s recent rally might continue, though he does not expect the USD-JPY pair to drop significantly below 140.
Data-Heavy Week Ahead
This week’s data will be crucial in shaping expectations for the Federal Reserve’s next moves. Markets are divided between anticipating a 25 basis-point or 50-basis-point rate cut at the Fed’s next meeting in September, with traders pricing in a total of 100 basis points in cuts for the year.
U.S. economic data has been mixed, with weaker payrolls data heightening recession fears, but stronger overall data helping to ease global slowdown concerns. U.S. producer price index (PPI) data for July, due later on Tuesday, could influence the core personal consumption expenditures (PCE) measure favored by the Fed. Any signs of reduced inflationary pressures could prompt markets to expect more significant rate cuts, impacting the dollar.
On Wednesday, U.S. consumer price index (CPI) data for July is expected to show a 0.2% month-on-month increase. Retail sales data will follow on Thursday.
The dollar index, which tracks the U.S. currency against six major rivals, was up 0.04% at 103.12. The euro remained steady at $1.0940, while sterling gained 0.1% to $1.2778.
In the commodities market, Brent crude futures fell 0.67% to $81.75 a barrel, and U.S. West Texas Intermediate crude futures slipped 0.59% to $79.59 a barrel. Despite Monday’s gains of over 3% for Brent and more than 4% for U.S. crude, prices eased slightly on Tuesday.
