(Bloomberg) — Stocks rallied as traders shifted their attention to the Bank of Japan news conference and the possibility of dovishness from the Federal Reserve later Wednesday.
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Financial stocks led gains in the Topix index after the Bank of Japan raised interest rates to around 0.25%. The MSCI benchmark for Asian shares rose more than 1.5%. US stock futures advanced on expectations that Chairman Jerome Powell could signal a potential rate cut in September.
The action-packed day roiled markets as traders digested the BOJ’s decision and prepared for the Fed. The yen wobbled before trading 0.2% weaker against the dollar. Treasury yields stabilized after falling in the previous four sessions, while a Bloomberg measure of dollar strength edged lower.
“Ueda’s conditions for further rate tightening and Japanese government bond purchases will be key points to watch at its afternoon conference,” said Homin Lee, senior macro strategist at Lombard Odier. “Following this action by the BOJ, we believe the US Fed will be back in the driver’s seat, with the meeting less than 24 hours away and the US employment report scheduled for Friday.”
Any comments from the Fed pointing to the possibility of a rate cut in September would support the narrowing interest rate spread narrative and likely support the yen. While BOJ interest rates remain low by global standards, they are now at their highest level since December 2008.
In other key developments, the Australian dollar fell and short-term bonds rose after core inflation unexpectedly eased last quarter, prompting traders to bet on a rate cut by the Reserve Bank. Chinese shares rose as expectations grew that Beijing would increase support for the struggling economy. South Korea’s Kospi Index climbed, buoyed by gains in Samsung Electronics Co., after the chipmaker reported its fastest profit growth since 2010.
“The decline in the AUD makes perfect sense: the market will now think that the RBA can indeed converge closer to peers on the policy rate side,” said Tim Baker, strategist at Deutsche Bank.
In commodities, oil prices rose after Hamas said Israel had assassinated its political leader, flaring tensions in a region that produces about a third of the world’s crude.
In the U.S., the world’s largest tech companies extended their losses overnight in the U.S. late hours as Microsoft Corp.’s results. fueling concerns that the artificial intelligence madness may have gone too far. A rotation out of the big tech sector has dragged the Nasdaq 100 down 9% from its all-time high, putting it on the cusp of a correction.
The S&P 500 fell to about 5,435 points on Tuesday. The Nasdaq 100 fell 1.4%. A measure of the “Magnificent Seven” megacaps fell 2%. The Russell 2000 of small companies rose 0.3%. Nvidia Corp. plummeted 7%, wiping out $193 billion in market value.
If the Fed is about to start a rate-cutting cycle, stock bulls have history on their side. According to calculations by financial research firm CFRA, the S&P 500 has risen an average of 5% per year in the six previous hike cycles after the first rate cut. Moreover, the gains also extended, with the small-cap Russell 2000 Index rising 3.2% 12 months later, the data show.
Main 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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U.S. Initial Unemployment Claims, ISM Manufacturing, Thursday
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Amazon, Apple earnings, Thursday
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Bank of England interest rate decision, Thursday
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US employment, factory orders, Friday
Some of the major moves in the markets:
Shares
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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 government bonds was little changed at 4.14%
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The Japanese ten-year yield rose by 6.5 basis points to 1.060%
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The Australian ten-year yield fell by 16 basis points to 4.12%
Raw materials
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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 help of Bloomberg Automation.
–With help from Swati Pandey and Matthew Burgess.
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