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US stock futures gain, Japan yields top 2014 high: Markets wrap

Finance

US stock futures rallied after strong earnings from Intel Corp, while Asian bonds retreated after Japan surprised investors by loosening its control of market rates.

Contracts on the Nasdaq 100 rose more than 1%, with Intel surging 8% in premarket trading as the chipmaker gave a bullish revenue forecast. Advanced Micro Devices Inc. and Nvidia Corp. added more than 1%. Roku Inc., the video-streaming platform, jumped 9% on higher-than-expected profit.

In bond markets, all of the focus was on the Bank of Japan, the only major central bank not to have begun reversing ultra-easy monetary policy. Having previously capped bond yields at 0.5% in a bid to stoke borrowing and its economy, the central bank said today it now regarded that level as a reference point rather than a rigid limit.

The move sent Japan’s 10-year yield to the highest level since 2014, amid speculation it marked the first step toward the end of extraordinary stimulus after the recent surge in inflation. In Australia, the corresponding rate rose 14 basis points.

While US and European yields jumped immediately after the BOJ’s announcement, the moves faded during the trading day on Friday. The yield on the 10-year US Treasury slipped below the 4% mark hit Thursday, when Nikkei reported that the BOJ was set to tweak its yield policy.

Also Friday, data showed the US core PCE deflator, one of the Fed’s favored inflation gauges, rose at an annualised 4.1% rate in June, versus the previous month’s 4.6%. US employment costs rose in the second quarter at the slowest pace in two years, reflecting a labor market that is gradually cooling.

The BOJ announcement comes at the end of a week that’s seen investors grow increasingly bullish on the belief that the central banks are near the end of hiking interest rates. Robust economic figures have also hinted at a soft landing for the US economy and on Friday, Germany said it had exited recession.

“Stock markets are justified in moving higher as more and more people now want to buy the dip,” said Peter Kinsella, head of currency strategy at asset manager Union Bancaire Privee UBP SA.

Company earnings have also surprised to the upside as the busiest week of this season’s results calendar draws to a close. Hermes International rose 3.8% in Paris after reporting robust sales for its high-end handbags. Standard Chartered Plc jumped 5% after announcing a $1 billion stock buyback.

In Japan, 10-year yields jumped 13.5 basis points to 0.575%, above the BOJ’s earlier cap of 0.5%. The yen rose 1% against the dollar, but later ceded most of the advance. It’s still headed for its best month since March, with gains of almost 3.5%.

More comments on BOJ move

Shinichiro Kadota, FX strategist, Barclays Securities Japan

“The latest BoJ action (and expectations thereof) are driving JPY to rebound toward short-rates-implied levels against major currencies, and we see scope for some further near-term gains. We have previously estimated that YCC removal is worth 3-5% yen appreciation against the USD. However, it will likely need policy-rate normalization for a more-sustained BoJ-driven rally.”

Masamichi Adachi, economist, UBS Securities Japan

“This is ‘de-facto’ abolishment of YCC, at least for the time being. No introduction of the policy rate guidance suggests that the Bank left open the near-term policy rate hike optionality, in our view.”

Jim Reid, strategist, Deutsche Bank

“They won’t be able to defend 0.5% now, absent a macro development that structurally lowers yields. 10yr JGBs have increased to 0.56 bps, their highest since 2014, and all other things being equal this should continue to creep up in the days and weeks to come and removes an anchor for global yields.

Michael Cahill, Economist, Goldman Sachs International

“The BoJ has communicated that this latest change was made in order to make the policy more ‘sustainable,’ and in any case represents a more gradual change than shortening the target or eliminating the policy altogether would have entailed. While we could see some further JPY strength in the coming days as the market explores the parameters of the BoJ’s new-found flexibility, we have previously argued that our macro forecasts of solid US growth and stickier Fed policy are not conducive to substantial or sustained Yen appreciation, and in fact point slightly in the other direction. Today’s more gradual BoJ adjustment helps reinforce that view.”

Key events this week:

  • Eurozone economic confidence, consumer confidence, Friday
  • US consumer income, employment cost index, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 0.1% as of 1:33 p.m. London time
  • S&P 500 futures rose 0.7%
  • Nasdaq 100 futures rose 1.1%
  • Futures on the Dow Jones Industrial Average rose 0.4%
  • The MSCI Asia Pacific Index rose 0.5%
  • The MSCI Emerging Markets Index rose 0.7%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.3%
  • The euro rose 0.4% to $1.1019
  • The Japanese yen fell 0.2% to 139.71 per dollar
  • The offshore yuan rose 0.1% to 7.1598 per dollar
  • The British pound rose 0.6% to $1.2874

Cryptocurrencies

  • Bitcoin rose 0.5% to $29,280.66
  • Ether rose 0.8% to $1,872.85

Bonds

  • The yield on 10-year Treasuries declined five basis points to 3.95%
  • Germany’s 10-year yield was little changed at 2.47%
  • Britain’s 10-year yield advanced two basis points to 4.33%

Commodities

  • Brent crude was little changed
  • Spot gold rose 0.7% to $1 958.76 an ounce

© 2023 Bloomberg

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