Asian equity markets showed a rebound after initial declines, indicating that investors are carefully evaluating the current economic landscape following recent global volatility. Japanese stocks recouped early losses, spurred by a recovery in financial sector shares. South Korea’s index also saw gains, bolstered by news that Samsung Electronics’ new HBM3E chip successfully passed Nvidia’s testing. Futures suggested modest increases in Hong Kong’s market.
In the U.S., the S&P 500 and Nasdaq 100 advanced by 1% each on Tuesday, reflecting a broader rebound led by Asian markets after a global downturn. The VIX, Wall Street’s gauge of market anxiety, experienced its most significant drop since 2010.
The U.S. dollar and Treasury yields remained stable during early Asian trading. The Japanese yen, however, continued its decline for a second consecutive day after a recent upsurge.
Kyle Rodda, a senior market analyst at Capital.Com, highlighted that the stability of the yen, which reflects the U.S. economic outlook, is crucial for Japanese and global equities. He noted that the USD/JPY exchange rate, currently around 145, could support a recovery in the Nikkei if it remains stable and trends upward.
Following a high-level meeting involving Japan’s Finance Ministry, the Bank of Japan, and the Financial Services Agency, Vice Finance Minister Atsushi Mimura emphasized the need for vigilant monitoring of economic and financial developments.
U.S. Treasury yields for 10-year notes were steady after a notable increase of 10 basis points to 3.89% on Tuesday. Market expectations for substantial Federal Reserve rate cuts this year have moderated, with swaps indicating about 105 basis points of easing, a reduction from the 150 basis points projected on Monday.
In other developments, the New Zealand dollar gained strength following a smaller-than-expected rise in the unemployment rate. Meanwhile, oil prices fell after a report showed an increase in U.S. crude inventories, ending a five-week period of declines.
Carol Schleif from BMO Family Office described the recent market downturn as a “textbook correction,” following a period of unusually low volatility in 2024. She noted that August, historically a volatile month due to lighter trading volumes, often experiences such corrections.
The S&P 500 climbed to 5,240, with Nvidia Corp. leading a 3.8% increase among chipmakers. The “Magnificent Seven” index of major technology companies and the Russell 2000 of smaller firms both rose by 1.2%.
The market exhibited a return to calm on Tuesday after a period marked by weak economic data, disappointing tech earnings, and seasonal trends. The recent pullback, which saw the S&P 500 drop nearly 8.5% from its peak, reflects a normal phase in bull markets. George Smith of LPL Financial noted that historical data shows dips and corrections of 10% or more are typical and healthy for bull markets, urging investors to stay patient and avoid panic.
