Asian share markets continued their upward trend on Wednesday, with the Nikkei leading the charge following a significant rebound, as the Bank of Japan unexpectedly adopted a cautious stance on interest rate hikes amid market volatility, resulting in a sharp decline in the yen.
European markets are expected to open on a positive note, with EUROSTOXX 50 futures gaining 0.9% and FTSE futures rising by 1.0%. Nasdaq futures increased by 0.7%, recovering from earlier losses triggered by a 12% drop in Super Micro Computer, an AI sector favorite, due to missed earnings estimates.
The Nikkei's 1.2% increase came after a 10% surge on Tuesday, indicating that investors are regaining confidence following the recent market turmoil. The index had previously plummeted by 13% on Monday. Initially, market sentiment in Asia appeared uncertain, but Bank of Japan Deputy Governor Shinichi Uchida reassured business leaders in a speech that the central bank would not hike rates during unstable financial markets, thereby boosting investor confidence.
The dollar strengthened by 1.8% against the yen, reaching 146.84, and moving away from the Monday low of 141.675, although it still lags significantly behind its July peak of 161.96. Hamilton Reiner, from JPMorgan Asset Management, believes that Japanese stocks will recover from their Monday slump of 13% due to ongoing corporate reforms within the Nikkei.
JPMorgan analysts suggest that the sell-off in Japanese stocks might be nearing its end, and there are indications that the unwinding of yen carry trades could also be close to completion. The yen carry trade, which involves borrowing yen at low rates to invest in higher-yielding assets, was a major factor in the recent market chaos but now appears to be stabilizing.
Elsewhere in Asia, MSCI's index of Asia-Pacific shares outside Japan rose by 1.7%, with South Korean stocks gaining 1.7% and Taiwan's market surging by 3.8%. China's blue-chip index edged up by 0.1%, and Hong Kong's Hang Seng index increased by 1.3%, following data that showed a 7.2% year-on-year rise in Chinese imports for July, surpassing expectations and signaling robust domestic demand, despite a slowdown in export growth.
Zichun Huang, an economist at Capital Economics, attributed the export slowdown to falling prices rather than reduced volumes, which remain near record highs. Huang anticipates that outbound shipments will remain strong, supported by a favorable exchange rate, and expects imports to increase further due to enhanced fiscal support.
In the bond market, safe-haven demand diminished, causing Treasury yields to rise for the second consecutive session. U.S. 10-year yields increased by 2 basis points to 3.9069%, distancing themselves from Monday's low of 3.667%. Two-year yields also climbed to 4.0116%, up from a low of 3.654%, as market expectations for an emergency rate cut by the Federal Reserve during a meeting decreased.
Futures now suggest a potential easing of 105 basis points this year, down from 125 basis points during Monday's market turmoil, with a 50-basis-point cut in September considered a 73% possibility. Concerns about an imminent U.S. recession have also eased slightly, as recent economic data continues to indicate solid growth in the current quarter.
The Atlanta Fed's GDPNow estimate places annual GDP growth at 2.9%. In commodity markets, gold prices edged up by 0.1% to $2,391.00 per ounce, below last week's peak of $2,477. Oil prices continued to fluctuate, with Brent crude rising by 0.2% to $76.63 per barrel and U.S. crude also increasing by 0.2% to $73.36 a barrel, as concerns over global demand competed with risks of supply disruptions in the Middle East.
