(Bloomberg) — Stocks rebounded as traders shifted focus to the Bank of Japan’s press briefing and the potential for the Federal Reserve to turn dovish later Wednesday.
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Financial shares led gains in the Topix index after the Bank of Japan raised interest rates to around 0.25%. The MSCI benchmark for Asian shares jumped more than 1.5%. US equity futures advanced with expectations that Chair Jerome Powell may signal a potential rate cut in September.
The action-packed day created gyrations across markets as traders digested the BOJ’s decision and geared up for the Fed. The yen fluctuated before trading 0.2% weaker against the greenback. Treasury yields stabilized after falling in the previous four sessions, while a Bloomberg gauge of dollar strength edged lower.
“Ueda’s conditions for further tightening in interest rate and JGB purchases will be key points to watch during his afternoon conference,” said Homin Lee, a senior macro strategist at Lombard Odier. “After this BOJ action, we think the US Fed will be back in the driving seat with its meeting due in less than 24 hours and the US employment report scheduled on Friday.”
Any comments by the Fed hinting at the possibility of a rate cut in September would support the narrative of a shrinking rate gap and likely support the yen. While the BOJ’s interest rate remains low by global standards, it is now at its highest since December 2008.
In other major moves, the Australian dollar fell and short-term bonds rallied after core inflation unexpectedly decelerated last quarter, prompting traders to boost bets on an interest-rate cut by the Reserve Bank. Chinese stocks jumped as anticipation grew for Beijing to enhance support for its struggling economy. South Korea’s Kospi Index climbed, buoyed by gains in Samsung Electronics Co. after the chipmaker reported its fastest pace of profit growth since 2010.
“The fall in AUD makes perfect sense — the market will now think the RBA can indeed converge closer to peers on the policy rate side,” said Tim Baker, strategist at Deutsche Bank.
In commodities, oil extended gains after Hamas said Israel killed its political leader, stoking tensions in a region that produces around a third of the world’s crude.
Overnight in the US, the world’s largest technology companies extended losses in US late hours as Microsoft Corp.’s results fueled concern the artificial-intelligence frenzy might have gone too far. A rotation out of big tech has dragged the Nasdaq 100 down 9% from its all-time high — leaving it on the cusp of a correction.
The S&P 500 fell to around 5,435 on Tuesday. The Nasdaq 100 slid 1.4%. A gauge of the “Magnificent Seven” megacaps sank 2%. The Russell 2000 of small firms rose 0.3%. Nvidia Corp. tumbled 7%, wiping $193 billion from its market value.
If the Fed is about to begin a rate cutting cycle, stock bulls have history on their side. In the six prior hiking cycles, the S&P 500 has risen an average 5% a year after the first cut, according to calculations by the financial research firm CFRA. What’s more, the gains also broadened, with the small-cap Russell 2000 Index climbing 3.2% 12 months later, the data show.
Key events this week:
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Eurozone CPI, Wednesday
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US ADP employment change, Wednesday
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Fed rate decision, Wednesday
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Meta Platforms earnings, Wednesday
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Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Thursday
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US initial jobless claims, ISM Manufacturing, Thursday
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Amazon, Apple earnings, Thursday
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Bank of England rate decision, Thursday
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US employment, factory orders, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures rose 0.7% as of 6:50 a.m. London time
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Japan’s Topix rose 1.4%
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Australia’s S&P/ASX 200 rose 1.6%
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Hong Kong’s Hang Seng rose 2.1%
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The Shanghai Composite rose 1.9%
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Euro Stoxx 50 futures rose 0.9%
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Nasdaq 100 futures rose 1.4%
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Australia’s S&P/ASX 200 rose 1.6%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0823
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The Japanese yen fell 0.2% to 153.13 per dollar
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The offshore yuan was little changed at 7.2433 per dollar
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The Australian dollar fell 0.8% to $0.6488
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The British pound was little changed at $1.2841
Cryptocurrencies
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Bitcoin fell 0.3% to $65,983.01
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Ether rose 0.2% to $3,288.75
Bonds
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The yield on 10-year Treasuries was little changed at 4.14%
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Japan’s 10-year yield advanced 6.5 basis points to 1.060%
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Australia’s 10-year yield declined 16 basis points to 4.12%
Commodities
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West Texas Intermediate crude rose 1.9% to $76.14 a barrel
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Spot gold rose 0.3% to $2,418.60 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Swati Pandey and Matthew Burgess.
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