(Bloomberg) — Stocks surged following reassurances from the Bank of Japan in response to the historic market volatility triggered by its unexpected interest rate hike last week.
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The Stoxx Europe 600 index climbed 0.8%, although disappointing earnings reports from major companies in the region tempered the gains. Futures for the S&P 500 and Nasdaq 100 also rose after the underlying indexes rebounded by over 1% on Tuesday due to increased buying interest. Japanese stocks led a broad rally across Asia.
Deputy Governor Shinichi Uchida of the Bank of Japan sent a clear dovish message by committing to avoid raising interest rates during unstable market conditions. After his remarks, the yen weakened by more than 2% against the dollar. These were the first public comments made by a BOJ board member since the rate hike on July 31.
The rate hike triggered a three-day decline in Japanese stocks, a surge in the yen, and a rapid unwinding of the currency carry trade, which had negative effects on risk assets globally. Concerns about a slowdown in the US economy and high valuations for tech stocks contributed to a significant sell-off on Monday, resulting in a $6.5 trillion stock market wipeout over three weeks.
“The BOJ comments indicate that the market volatility is prompting central banks to reconsider their reaction strategies,” said Justin Onuekwusi, chief investment office at St James Place.
Despite this, the recent turmoil serves as a “harsh reminder of how quickly circumstances can change,” he noted. “While overall corporate balance sheets remain strong and recession risks are low, we are seeing a slight decline in earnings and companies are providing more uncertain guidance for the future.”
Treasury yields rose, and the Bloomberg dollar index increased for a second consecutive day.
The Mexican peso, which was negatively impacted by the BOJ rate hike, rose by more than 1% against the dollar on Wednesday. Similarly, the Australian dollar and New Zealand dollar both saw gains.
In Europe, Novo Nordisk A/S shares plummeted after the company lowered its profit forecast for the year. Shares of German lender Commerzbank AG, sportswear maker Puma SE, and skincare products maker Beiersdorf AG also declined following earnings disappointments.
Key events this week:
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US consumer credit, Wednesday
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Germany industrial production, Thursday
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US initial jobless claims, Thursday
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Fed’s Thomas Barkin speaks, Thursday
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China PPI, CPI, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 rose 0.8% as of 9:24 a.m. London time
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S&P 500 futures rose 0.8%
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Nasdaq 100 futures rose 0.9%
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Futures on the Dow Jones Industrial Average rose 0.6%
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The MSCI Asia Pacific Index rose 1.5%
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The MSCI Emerging Markets Index rose 1.8%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0926
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The Japanese yen fell 1.6% to 146.68 per dollar
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The offshore yuan fell 0.4% to 7.1884 per dollar
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The British pound rose 0.1% to $1.2708
Cryptocurrencies
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Bitcoin rose 0.8% to $57,049.96
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Ether rose 1.1% to $2,516.38
Bonds
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The yield on 10-year Treasuries advanced four basis points to 3.93%
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Germany’s 10-year yield advanced seven basis points to 2.27%
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Britain’s 10-year yield advanced five basis points to 3.97%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu.
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