(Bloomberg) — sian stocks rose, fully recovering their losses from last week’s rout, bolstered by an advance in Japanese shares.
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Japan’s equities rose after a holiday, as a weaker yen was seen providing support for exporters. MSCI’s Asia-Pacific gauge rose as much as 1%. That erased losses from last week’s tumble, when a risk-off move sent indexes around the world plummeting and the VIX US volatility index above 65 at one point, compared with a lifetime average of around 19.5.
Shares in Hong Kong also ticked higher, while those in mainland China fluctuated. The S&P 500 closed little changed ahead of US inflation data later Tuesday and Wednesday. Treasuries held Monday’s gains.
“In recent market moves, the market’s reaction to last week’s VIX spike reflects a reassessment of positioning rather than just U.S. data points or yen carry unwinding,” said Billy Leung, an investment strategist at Global X Management in Sydney. “However, it’s key to be cautious in reading short-term Asia movements, given signs of foreign outflows and low liquidity.”
Oil remained near the $80 level it hit on Monday, as the US sees an Iranian attack against Israel as increasingly likely. Israel’s sovereign debt was cut by one notch by Fitch Ratings, which kept a negative outlook on the credit as continued military conflict weighs on the country’s public finances.
Both the Nikkei 225 and the Topix are down more than 8% since the end of July, when the Bank of Japan raised its benchmark interest rate and unveiled plans to reduce its bond purchases. The benchmarks slid into a bear market on Aug. 5, when losses exceeded 20%.
Markets continue to parse the consequences of rate hikes from the Bank of Japan, including the unwinding of the carry trade, where investors would use the yen as a cheap funding currency.
After last week’s turmoil, markets will be focused on Wednesday’s US consumer price index to see if the Fed will have a freer or more constrained hand in refocusing on the labor market and front-loading rate cuts sufficiently to secure a soft landing, according to Krishna Guha at Evercore.
“The first wave of yen carry trade unwind should be complete by now, and investor focus is now on US inflation and retail sales data to gauge the soft-landing probability,” said Linda Lam, head of equity advisory North Asia at Union Bancaire Privee. “Risk sentiment is on the mend with most Asian markets expected to stabilize at current range, barring major shocks that could dramatically change Fed interest rate cut trajectory,” she said.
Elsewhere in Asia, regulators told commercial banks in China’s Jiangxi province not to settle their purchases of government bonds, taking some of the most extreme measures yet to cool a market rally that has alarmed Beijing. At least four Chinese brokerages have started fresh measures to cut back trading of domestic debt beginning last week, people familiar with the matter said.
Risk-Reward
The risk-reward for stock markets remains mixed over the summer months against the backdrop of weakening business activity and negative earnings revisions, according to JPMorgan Chase & Co. strategists led by Mislav Matejka.
“Fed will start cutting, but this might not drive a sustained leg higher, as the cuts might be seen as reactive, and behind the curve,” they wrote.
Investors will have a brief window to buy the dip in US stocks at the end of this month as selling pressure from systematic funds eases while companies boost share buybacks, according to Scott Rubner at Goldman Sachs Group Inc.
More near-term dips can’t be excluded if activity data surprise negatively, but investors should buy stocks on weakness as fundamentals are still supportive of risk assets, HSBC strategists say.
Key events this week:
Germany ZEW survey expectations, Tuesday
US PPI, Tuesday
Fed’s Raphael Bostic speaks, Tuesday
Eurozone GDP, industrial production, Wednesday
US CPI, Wednesday
China home prices, retail sales, industrial production, Thursday
US initial jobless claims, retail sales, industrial production, Thursday
Fed’s Alberto Musalem and Patrick Harker speak, Thursday
US housing starts, University of Michigan consumer sentiment, Friday
Fed’s Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 10:51 a.m. Tokyo time
Japan’s Topix rose 2.1%
Australia’s S&P/ASX 200 rose 0.1%
Hong Kong’s Hang Seng rose 0.3%
The Shanghai Composite was little changed
Euro Stoxx 50 futures rose 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0933
The Japanese yen fell 0.1% to 147.43 per dollar
The offshore yuan was little changed at 7.1812 per dollar
Cryptocurrencies
Bitcoin rose 1.6% to $59,773.49
Ether rose 1.7% to $2,727.86
Bonds
Commodities
West Texas Intermediate crude fell 0.5% to $79.63 a barrel
Spot gold fell 0.3% to $2,466.06 an ounce
This story was produced with the assistance of Bloomberg Automation.
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