Asian equity markets showed signs of stability on Wednesday, buoyed by a rebound on Wall Street and a reassessment of U.S. recession fears. Despite this general recovery, Japanese stocks experienced a decline, reflecting ongoing volatility that affected leveraged positions.
The Nikkei index fell by 0.6%, a minor decrease compared to its dramatic 13% drop on Monday and the subsequent 10% rally on Tuesday. This tempered decline has sparked optimism that the market may be stabilizing.
JPMorgan analysts suggested that the recent Japanese stock sell-off might be nearing its end. “Both foreign and domestic investors have adjusted their year-to-date net purchases,” they noted. “If the market maintains its current level, the Government Pension Investment Fund (GPIF) could potentially become a net buyer by the end of September. Furthermore, the unwinding of yen carry trades appears to be nearing completion.”
The GPIF, a major player in the market, wields significant influence due to its extensive investment capacity.
The yen carry trade—where investors borrow yen at low interest rates to invest in higher-yielding assets—was a major factor in the recent market turbulence but is showing signs of stabilization. The U.S. dollar inched up by 0.2% to 144.67 yen, recovering from Monday’s low of 141.675 but remaining well below its July peak of 161.96. The dollar also gained against the Swiss franc, reaching 0.8532 after Monday’s low of 0.8430.
The MSCI Asia-Pacific index excluding Japan rose by 0.4%, and South Korean stocks gained 0.8%.
In the U.S., Nasdaq futures saw a slight decline of 0.1% following a 12% drop in Super Micro Computer’s stock after it missed earnings estimates. Meanwhile, S&P 500 futures steadied from earlier losses, with EUROSTOXX 50 futures increasing by 0.5%. FTSE futures were up by 0.7%, and DAX futures rose by 0.3%.
As demand for safe-haven assets waned, Treasury yields increased for the second consecutive session. U.S. 10-year yields rose to 3.908%, recovering from Monday’s low of 3.667%, while two-year yields climbed to 3.997% from a previous low of 3.654%. Market expectations for Federal Reserve rate cuts have moderated, with futures now suggesting 105 basis points of easing this year, down from 125 basis points during Monday’s turmoil. A 50-basis-point cut in September is now considered a 73% likelihood.
Concerns about an imminent U.S. recession have eased slightly, supported by economic data indicating solid growth in the current quarter. The Atlanta Fed’s GDPNow forecast estimates an annual GDP growth rate of 2.9%.
In commodities, gold prices held at $2,386 per ounce, down from last week’s peak of $2,477. Oil prices continued to fluctuate due to mixed signals about global demand and potential supply disruptions in the Middle East. Brent crude decreased by 18 cents to $76.30 per barrel, while U.S. crude fell by 26 cents to $72.94 per barrel.
