(Bloomberg) — A rally in global stocks lost momentum as the yen resumed its rally, fueling renewed concerns over a carry-trade relaxation after a fresh rebound fueled by signs of a slowdown in the U.S. labor market.
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European shares rose at the end of a volatile week that saw volatility rise to historic highs. US equity futures erased early gains after the S&P 500 posted its best daily advance since November 2022. It’s on pace for a fourth straight weekly decline. Treasury yields fell and the dollar weakened.
A resurgent yen threatens a full recovery of risk appetite. It came as a better U.S. jobless claims report helped ease fears of a recession fueled by worse-than-expected employment data last week. Much now depends on U.S. data next week, particularly consumer-inflation and retail-sales numbers, as investors look for evidence of a soft landing.
“Market volatility may be elevated for some time,” said Mark Hefel, chief investment officer at UBS Global Wealth Management. Economic uncertainty remains high.
According to Bob Savage, head of market strategy at BNY Mellon Capital Markets, as the Japanese currency strengthens, easing carry trades leaves more room to run and short-yen positions will continue to be reduced. Investors are still very bearish on the yen, which could move toward 100 to the dollar over time, he said.
Japan’s TOPICS index eased to 0.9% from 2% earlier after the Japanese currency erased losses to strengthen against the dollar. A strong yen erodes Japan’s export competitiveness and puts a drag on the country’s stocks.
Chinese stocks were flat after earlier gains as views grew that the better-than-expected inflation print was mainly due to seasonal factors such as weather.
Mixed signals from US central bank officials could trigger caution among investors. For one, Federal Reserve Bank of Kansas City President Jeffrey Schmidt indicated that the U.S. is not ready to support cutting interest rates with inflation above target, according to comments released Thursday.
Swap traders have further cut bets on aggressive Fed easing in 2024. The global revaluation was so sharp that at one point interest-rate swaps were 60% likely to be cut by the central bank next week – ahead of its next scheduled meeting in September. Current pricing implies a 40 basis point cut for September.
Following Thursday’s rally, oil remained steady amid heightened tensions in the Middle East. Gold fell.
Highlights of this week:
Some key movements in the markets:
Shares
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The Stoxx Europe 600 was up 0.4% as of 8:11 a.m. London time.
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S&P 500 futures rose 0.1%
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Nasdaq 100 futures rose 0.1%
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Futures for the Dow Jones industrial average rose 0.1%
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The MSCI Asia Pacific index rose 1.5%
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The MSCI emerging market index rose 1.7%
Coins
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro was little changed at $1.0928
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The Japanese yen was little changed at 147.09 per dollar
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The offshore yuan was up 0.2% at 7.1727 per dollar
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The British pound was up 0.2% at $1.2771
Cryptocurrencies
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Bitcoin rose 2.6% to $61,086.26
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Ether rose 4.7% to $2,692.79
Bonds
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The yield on 10-year Treasuries fell two basis points to 3.97%.
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Germany’s 10-year yield fell one basis point to 2.26%.
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Britain’s 10-year yield fell one basis point to 3.97%.
materials
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Brent crude was little changed
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Spot gold was down 0.3% at $2,420.89 an ounce
This story was produced with the help of Bloomberg Automation.
–With assistance from Richard Henderson.
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