(Bloomberg) — Asian shares swung between gains and losses Thursday as investors weighed risks for global markets after a volatile week in which central bank policy decisions created uncertainty.
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Japan’s Topix Index fell again on Thursday after recovering from an earlier loss of as much as 1.8%. Benchmarks in China and Hong Kong rose, while Korea and Australia fell. MSCI’s Asia-Pacific Index moved lower and is down 1.9% so far this week. The dollar weakened against major currencies, including the yen.
Thursday’s summary of last week’s Bank of Japan meeting, when it raised rates, showed one member setting the neutral rate at 1%, while another called for timely rate hikes to avoid rapid rate hikes.
Global markets have been roiled over the past week as investors prepare for a move by the US and Japanese central banks in opposite directions, which in turn undermines the yen’s role as a cheap source of funding for financial assets.
It is “a period of consolidation before a new trend emerges given how volatile the market has been,” said Kerry Goh, Chief Investment Officer at Kamet Capital Partners Pte. “Investors will likely stay on the sidelines until new data emerges. The next few days will be crucial: either a quiet return or we will see a new period of volatility emerge.’
Both the Nikkei 225 and Topix have recovered about half of their losses since late July, when the Bank of Japan raised its policy rate. Japanese 10-year yields fell for a second day.
According to strategists at JPMorgan Chase & Co, three-quarters of the carry trade has been unwound as the recent slump has wiped out any positive full-year returns.
The carry strategy – which involves borrowing at low interest rates to finance purchases of higher-yielding assets elsewhere – has been faltering for months. Carry trades took a hit last week as volatility increased in global markets on fears of rapid rate cuts from the Federal Reserve and after the Bank of Japan’s bigger-than-expected rate hike.
Unwinding the carry trade still has room, but the slowing speed of the shift allows investors to “breathe a sigh of relief,” said Quincy Krosby of LPL Financial. “A softer dollar, driven by markets’ perception that the Fed will soon initiate an easing cycle, should help support a stronger yen – negative for trading.”
Investors will be looking to U.S. unemployment figures on Thursday for more clues. Markets have been in a tailspin since weak economic data last week fueled concerns that the Fed’s decision to keep interest rates at 20-year highs would risk a deeper economic slowdown.
The dollar was weaker on Thursday, reversing the previous session’s moves. Weak demand for a 10-year Treasury auction and $31.8 billion in corporate debt issuance were headwinds.
The Treasury auction result is “consistent with our view that we are in for a sustained correction to higher yields in the near term,” said Zachary Griffiths, head of U.S. investment grade and macro strategy at CreditSights. “The price revision after what was actually just a moderately weak payroll report seems way overdone.”
Shares of Lasertec rose as much as 23%, the most since January 2015, after the Japanese semiconductor company reported strong fourth-quarter results from record orders.
Oil held steady after its biggest advance in a week, while markets were tense over a possible retaliatory attack by Iran on Israel in revenge for the killing of Hamas and Hezbollah leaders.
Main events this week:
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Germany industrial production, Thursday
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First unemployment claims in the US, Thursday
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The Fed’s Thomas Barkin will speak on Thursday
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China PPI, CPI, Friday
Some of the major moves in the markets:
Shares
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Futures on the S&P 500 were little changed as of 1:30 p.m. Tokyo time
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Nikkei 225 futures (OSE) fell 0.3%
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Japan’s Topix fell 0.4%
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Australia’s S&P/ASX 200 fell 0.3%
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Hong Kong’s Hang Seng rose 0.7%
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The Shanghai Composite rose 0.4%
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Euro Stoxx 50 futures fell 0.9%
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Nasdaq 100 futures rose 0.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.1% to $1.0936
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The Japanese yen rose 0.3% to 146.21 per dollar
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The offshore yuan rose 0.3% to 7.1656 per dollar
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The Australian dollar rose 0.6% to $0.6559
Cryptocurrencies
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Bitcoin rose 3.4% to $57,031.84
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Ether rose 3.6% to $2,435.25
Bonds
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The yield on ten-year government bonds fell by three basis points to 3.91%
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The Japanese ten-year yield fell by two basis points to 0.855%
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The Australian ten-year yield was little changed at 4.08%
Raw materials
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West Texas Intermediate crude rose 0.1% to $75.31 a barrel
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Spot gold rose 0.5% to $2,393.81 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from Abhishek Vishnoi.
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