Stocks Pare Losses as Japan Rebounds, Dollar Dips: Markets Wrap

(Bloomberg) — Most Asian stock indexes erased earlier losses Thursday amid a bout of volatile trading as investors digest signals from central banks on the path ahead for interest rates.

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Japan’s Topix Index rebounded from a loss of as much as 1.8% and benchmarks China and Hong Kong gained. MSCI’s Asia-Pacific Index rose slightly, and was off 1.3% on the week so far. The dollar weakened against major currencies, including the yen.

A Thursday summary of opinions from last week’s Bank of Japan meeting, when it raised rates, showed one member identify the neutral rate at 1%, while another called for timely rate increases to avoid rapid hikes.

Global markets have been rocked in the past week as investors prepare for the US and Japanese central banks to move in opposite directions, in turn undermining the yen’s role as a cheap source of funding for financial assets.

It is “consolidation period before any new trend, given how volatile the market has been,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “Investors probably will stay sideline until new data appear. The next couple of days will be crucial, either calm returns or we see a new bout of volatility emerges.”

Three-quarters of the carry trade has been unwound as the recent slump wiped out all positive year-to-date returns, according to strategists at JPMorgan Chase & Co.

The carry strategy — which involves borrowing at low rates to fund purchases in higher-yielding assets elsewhere — has been wobbling for months. Carry trades were pummeled over the past week as global market volatility jumped amid fears of rapid Federal Reserve rate cuts and after the Bank of Japan’s larger than expected rate hike.

The unspooling of the carry trade has further room to run but the declining velocity of the shift allows investors to breathe “a sigh of relief,” according to Quincy Krosby at LPL Financial. “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.”

Investors are watching for US jobless claims data Thursday to get more cues. Markets have been in a tailspin since weak economic data last week fueled worries that the Fed’s decision to hold rates at a two-decade high is risking a deeper economic slowdown.

“There’s been some sense of calm last few days, mainly because of lack of US economic data coming out,” said Charu Chanana, head of currency strategy at Saxo Markets. “Today’s jobless claims may change that if recession concerns come back to the fore.”

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.

The dollar was weaker Thursday, partly reversing moves from the prior session. Lackluster demand for a 10-year Treasury auction and $31.8 billion in debt offerings from blue-chip companies were headwinds.

The Treasury 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.”

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.

Shares in Sony rallied Thursday after the Japanese consumer electronics company boosted its operating income guidance for the full year.

“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 steadied after its biggest advance in a week, with the market on edge over a possible retaliatory strike by Iran on Israel as payback for assassinations of Hamas and Hezbollah leaders.

Key events this week:

• Germany industrial production, Thursday

• US initial jobless claims, Thursday

• Fed’s Thomas Barkin speaks, Thursday

• China PPI, CPI, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 12:35 p.m. Tokyo time

• Nikkei 225 futures (OSE) rose 0.5%

• Japan’s Topix rose 0.5%

• Australia’s S&P/ASX 200 was little changed

• Hong Kong’s Hang Seng rose 0.7%

• The Shanghai Composite rose 0.4%

• Euro Stoxx 50 futures fell 0.8%

• Nasdaq 100 futures rose 0.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro was little changed at $1.0931

• The Japanese yen was little changed at 146.54 per dollar

• The offshore yuan rose 0.2% to 7.1760 per dollar

• The Australian dollar rose 0.5% to $0.6551

Cryptocurrencies

• Bitcoin rose 4.2% to $57,447.26

• Ether rose 4.3% to $2,449.41

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.92%

• Japan’s 10-year yield advanced two basis points to 0.895%

• Australia’s 10-year yield advanced one basis point to 4.09%

Commodities

• West Texas Intermediate crude rose 0.4% to $75.54 a barrel

• Spot gold rose 0.3% to $2,389.92 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi.

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