Global markets rebounded, led by technology stocks, as uncertainties around inflation and interest rates remain prevalent. Micron’s promising financial forecast bolstered U.S. stock futures, while the Japanese yen weakened against the dollar following the Bank of Japan’s (BOJ) less hawkish-than-anticipated messaging.
Wall Street Recovers Amid Tech Gains
Following sell-offs in the last session, Nasdaq 100 futures climbed about 1%, while S&P 500 futures advanced 0.6%. In Asia, tech stocks led the rally, with Japan’s Nikkei 225 climbing 2.9% and South Korea’s Kospi rising 1.3%. Micron saw a surge as a result of its strong projections, and Alphabet’s unveiling of its Gemini 4 Argon AI model further supported its shares.
U.S. Treasury yields partially recovered from losses as oil prices fell. After reaching peaks not seen since 2002, the 10-year Treasury yield stabilized around 5.28%, and the 30-year yield settled at approximately 5.62%. Significantly, the prior session’s Asian trading saw pronounced bond selling following U.S securities losses.
As the dollar strengthened, gold rose toward $4,175 per ounce, and silver gained 1.2%. U.S. crude dropped 1.4% to about $89.20, with Brent falling below $97. After the MSCI All-Country World Index marked its first monthly loss in three months, investors are now eyeing the upcoming U.S. employment report.
Yen Drops as Interest Rate Hike Expectations Diminish
The Japanese yen depreciated up to 0.5% against the dollar, hitting 158.21, ranking as the weakest among G10 currencies. The BOJ’s summary of its September meeting highlighted evaluations to prevent inflation from overshooting targets. Some members hinted that the neutral rate might be higher than previously estimated, suggesting prior rate hikes had minimal impact on corporations. They advocated for further rate adjustments without delay.
Despite these statements, market expectations for consecutive rate hikes in October waned. The probability of an October 30 rate increase briefly surpassed 30% but dropped below 20% by October 1. However, an additional hike by December remains anticipated.
Takuya Kanda, an analyst at Gaitame Research Institute, remarked on the numerous hawkish views but noted they weren’t potent enough to reinforce the expectation of consecutive rate hikes. Kanda warned that the yen crossing above 158 might heighten concerns of market intervention, potentially curbing the dollar’s ascent.
The Federal Reserve’s hawkish stance continues to pressure the yen. Last month, the Fed unanimously raised policy rates and signaled further hikes later this year and next. The divergence in monetary policy outlooks between the U.S. and Japan remains a drag on the yen.
The BOJ’s Tankan survey, released on October 1, reflected the highest confidence among large manufacturers in over eight years. However, signs of intensifying inflationary pressures remained limited. Taro Kimura, Bloomberg Economics’ Chief Japan Economist, noted these results reduced the probability of consecutive rate hikes in October.
In Japan, long-term bond yields primarily rose, reflecting concerns that the BOJ’s pace of tightening might be insufficient to curb inflation. Japan’s 30-year bond yield increased by about 5 basis points to reach 4.20%, while bonds in Australia and New Zealand depreciated.
Bitcoin Faces Headwinds from Strong Dollar and Rising Rates
For Bitcoin, the recovery in tech stocks could be supportive through risk appetite. However, the strengthening dollar, high U.S. Treasury yields, and the Fed’s inclination towards additional rate hikes could limit upward momentum. As such, the scale of positive sentiment from equity markets spilling into Bitcoin hinges on the forthcoming U.S. employment data release.
