A holiday in Japan eliminated a source of recent volatility, causing global markets to slightly rise on Monday as the yen declined as investors anticipated economic data from China and the United States.
Last week, the U.S. jobs report was disappointing, and the unwinding of a hugely popular Japanese yen trading technique contributed to a wild ride for stock markets that was spearheaded by a drop in Japan.
Still, some better-than-expected U.S. statistics served to calm concerns about a worldwide downturn, and by Friday, markets had nearly recovered all of their losses.
By 1447 GMT, the MSCI index of global stocks had increased by 0.25%, while the S&P 500 on Wall Street had increased by 0.36%. With minimal changes to the Dow Jones Industrial Average, the Nasdaq Composite Index increased by 0.7%.
“We have been winding risk down during the recent market move globally,” said Robert Both, a senior macro strategist at TD Securities. “Our preferred positioning is dovish with moderate risk allocated at the moment.”
In Europe, the British FTSE 100 was up 0.59%, the German DAX index was unchanged, and the STOXX 600 index was up 0.15%.
Investors were anticipating Wednesday’s release of U.S. consumer price index data for July, which is predicted to reveal that month-over-month inflation increased to 0.2% from a figure of minus 0.1% in June. Data on retail sales is expected on Thursday.
“It’s a pretty benign expectation,” said Timothy Graf, a senior macro strategist at State Street. “Inflation is really not the problem it once was.”
“The balance of risks is that policy has been too tight for too long. Now you’re starting to see that show up in the labour market.”
Japan’s yen declined while the dollar gained 0.83% to trade at 147.84 yen. Both the euro and the dollar index barely moved, both closing at 103.22. To $1.2784, the pound increased by 0.22%.
Investors have been caught off guard by a sudden surge in the value of the Japanese yen over the months of July and August, which has forced them to unwind carry trades, wherein they borrow yen in order to purchase dollars and other currencies to invest in assets with higher yields.
According to data released on Friday, the rate at which leveraged funds—typically hedge funds and different kinds of money managers—closed their yen bets was the fastest since March 2011.
“It has been a much quieter start to this week than last week,” said Lee Hardman, currency strategist at MUFG.
“The sharp reduction in short yen positions held by leveraged funds … has likely provided some reassurance as well that the unwind of yen-funded carry trades is now more complete.”
Due to Monday’s holiday-closure of Japanese markets, there was calm during the Asia session, and MSCI’s non-Japan Asia stock index recorded a 0.41% increase.
On Thursday, China releases data on industrial production and retail sales. These numbers are predicted to reveal that the economy is still struggling, which might increase investor concerns about the pace of global development.
The yield on the 10-year Treasury note, which determines borrowing prices globally, increased by 15 basis points last week, marking the largest increase since April. This week’s yield was barely changed at 3.9436%. Price movement is inverse for yields.
After rising 3.5% last week due to concerns about escalating hostilities in the Middle East endangering supplies, oil prices are now gradually rising. [Oral/Verbal]
During their Sunday meeting, Israeli Defense Minister Yoav Gallant informed US Defense Secretary Lloyd Austin that Iran appears to be preparing a major military assault on Israel based on its military preparations.
In contrast to U.S. crude, which increased 1.5% to $77.99 a barrel, Brent gained 1.18% to $80.61.
