Asian shares extend gains

Sydney — Asian share markets extended their rally on Wednesday, led by another bounce in the Nikkei, as the Bank of Japan (BoJ) unexpectedly turned cautious on rate hikes amid market volatility, which led to a sharp fall in the yen.

The Nikkei’s 2.3% rise followed Tuesday’s 10% rally, suggesting investors were finding their footing after the recent market rout. The index slumped 13% on Monday.

Sentiment had looked a little shaky early in Asia, but BoJ deputy governor Shinichi Uchida said in a speech to business leaders the central bank would not raise interest rates when financial markets were unstable, boosting risk sentiment.

The dollar jumped 1.9% to ¥147.03 and away from the ¥141.675 trough hit on Monday, though it remains far below its July peak of ¥161.96.

Hamilton Reiner, head of US derivatives at JPMorgan Asset Management, believes Japanese stocks would recover from Monday’s 13% slump given the corporate reforms being undertaken by companies represented in the Nikkei.

“When you have an environment, the environment of macro and micro doesn’t really change much, and you see this price action, it’s really about an opportunity than fear.”

Analysts at JPMorgan said the sell-off in Japanese stocks could almost be over, while there was also a view emerging that the unwinding of yen carry trades could be nearing completion.

The unravelling of the yen carry trade — where investors borrow yen at low rates to buy higher yielding assets — was a driving force in the market rout, but again seemed to be stabilising.

MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.4%. South Korean stocks added 2.5% while Taiwan surged 3.4%.

China’s blue-chip index rose 0.2% while Hong Kong’s Hang Seng index gained 1%, after data showed that Chinese imports in July rose 7.2% from a year earlier, beating forecasts, in a positive sign for domestic demand, although growth in exports slowed.

After Wall Street bounced overnight, Nasdaq futures surged 1% despite a 12% dive in AI darling Super Micro Computer after it missed earnings estimates.

S&P 500 futures were also up 0.8% while Eurostoxx 50 futures firmed 1.2%.

With safe-haven in less demand, treasury yields ticked higher for a second session. US 10-year yields were up at 3.9127%, and well off Monday's low of 3.667%.

Two-year yields climbed back to 4.0183%, from a deep trough of 3.654%, as markets scaled back wagers on an intra-meeting emergency rate cut from the Federal Reserve.

Futures now imply 105 basis points (bps) of easing in 2024, compared with 125bps at one stage during Monday’s turmoil, while a 50bp cut in September was seen as a 73% chance.

Fears of an imminent US recession had also faded a little as the run of economic data still pointed to solid economic growth in the current quarter.

The Atlanta Fed’s much-watched GDPNow estimate is that GDP is running at an annual pace of 2.9%.

In commodity markets, gold prices slipped 0.2% at $2,383.77/oz and short of last week’s $2,477 top.

Oil prices remained volatile as concerns about waning global demand warred with the risk of supply disruptions in the Middle East.

Brent rose 0.1% to $76.57 a barrel, while US crude was also up 0.1% to $73.29 a barrel.

Reuters