(Bloomberg) — Stocks rose worldwide after the Bank of Japan moved to reassure markets following historic volatility sparked in part by an unexpected interest rate hike in the Asian nation.
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Stocks were on track for their best two-day gain since May as the panic that has gripped the financial world eased. The yen fell after a Bank of Japan official signaled that Japan would not raise interest rates if markets were unstable. Aside from the slump in safe-haven demand, Treasuries came under pressure as 17 companies sought to sell investment-grade U.S. debt as majors retreated to primary markets.
Japan’s reassurance came after huge swings in the country’s stock prices over the past week, with benchmark indexes plunging into bear markets before rebounding sharply. The moves were exacerbated by the view that the Federal Reserve would cut interest rates more aggressively, prompting traders to quickly unwind previously popular yen-funded carry trades — including crowded positions in U.S. technology stocks.
“Investors are taking a more serious look at the events of the past week or so,” said Fawad Razaqzadeh of City Index and Forex.com. “That doesn’t mean we’re out of the woods yet. But there is at least some stability, which should allow some markets to reorganize themselves according to fundamentals.”
Mark Hackett at Nationwide says recent events have been a “masterclass” in how emotions can drive markets, especially when sentiment is almost universally positive.
“Those who have been able to keep their cool so far have been rewarded, but there is still time for a full assessment,” he said.
The S&P 500 rose 1%, led by technology and energy stocks. Meta Platforms Inc. is selling high-grade bonds. Micron Technology Inc. is restarting its buyback program. Super Micro Computer Inc. fell on disappointing earnings. Airbnb Inc. fell on a weak outlook.
The yield on 10-year U.S. Treasury notes rose five basis points to 3.94%. The Japanese yen fell 2%. The Mexican peso led a rally in emerging markets, easing pressure on hard-hit currencies as investors dumped yen-backed bets on riskier assets. European gas prices rose to their highest this year after a report that Ukrainian forces had seized a key gas transit point at Sudzha.
“The Bank of Japan came first to try to calm the markets,” said Krishna Guha of Evercore. “This came on the heels of extreme volatility in Japanese asset prices and the unwinding of global yen carry trades that led to negative reversals and a massive sell-off in equities linked to renewed fears of a US recession.”
The global carry trade pullback triggered by the Bank of Japan’s surprisingly hawkish stance last week – which in turn boosted the yen significantly – has eased significantly, said Quincy Krosby of LPL Financial.
“Global markets have taken comfort in the slowing pace of unwinding, but the yen’s relationship with the dollar is also a key element in the carry trade calculations,” she noted. “A weaker dollar, driven by markets’ perception that the Fed will soon begin an easing cycle, should help support a stronger yen – a negative for the trade.”
Markets have been in a tailspin on recent weak U.S. data, but it’s too early to say the economy is headed for recession, according to the Franklin Templeton Institute. With Treasury rates soaring, it “makes sense” to take some profits, Stephen Dover wrote.
U.S. Treasury yields are likely to be very low in the absence of “broad evidence that either the labor market or market function is deteriorating sharply,” according to strategists at Goldman Sachs Group Inc.
“The argument for a meaningful upside from here is that one (or both) of these risks materialize,” William Marshall and Bill Zhou wrote. “Under a more benign outcome, we believe the center of gravity for yields is likely to be higher than current levels across the curve, relatively in line with futures.”
Will Cumbrnall of FHN Financial sees Treasury yields now comfortably above Monday’s lows, reflecting a sense of calm after financial markets lost steam earlier this week.
“It’s too early to declare the chaos over, but Treasury yields could head lower during light August trading and a relative data vacuum the rest of this week,” he said.
The company’s most prominent achievements:
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Walt Disney Co. reported a mixed picture when it reported third-quarter results on Wednesday, as weakness at its popular theme parks offset its first-ever profit in streaming.
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Shopify Inc. reported second-quarter sales and earnings that beat analysts’ estimates, showing the Canadian e-commerce company was able to navigate cautious consumer spending.
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CVS Health Corp. lowered its 2024 earnings outlook for the third straight quarter and announced cost-cutting measures to save $2 billion over several years as health care costs continue to rise.
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Car rental company Lyft Inc. reported second-quarter bookings and issued a forecast that fell short of Wall Street expectations.
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Boeing is redesigning a fuselage component that exploded from a new 737 Max 9 jetliner nearly mid-flight in January, as the planemaker seeks to learn lessons from the accident that plunged it into crisis.
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Novo Nordisk A/S reported disappointing sales of its flagship weight-loss treatment Wegovy, a rare setback for the Danish drugmaker as it braces for more competition in a booming market.
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Rivian Automotive Ltd. is sticking to its full-year vehicle production target unchanged from last year, but its CEO expects production to grow in 2025 even with the plant closed.
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Brookfield Asset Management said its assets under management rose to a record high of nearly $1 trillion and reported profit that was higher than last year but still below analysts’ expectations.
Main events this week:
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Industrial production in Germany, Thursday
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Initial Jobless Claims in the United States, Thursday
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Federal Reserve Board Member Thomas Barkin speaks Thursday.
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China CPI, Friday
Some key movements in the markets:
Stores
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The S&P 500 was up 1% as of 12:21 p.m. ET in New York.
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The Nasdaq 100 rose 1.1%.
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The Dow Jones Industrial Average rose 0.6%.
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MSCI World Index rose 1%
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The Bloomberg Magnificent 7 Total Return Index rose 0.9%.
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The Russell 2000 index rose 0.4%.
Currencies
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The Bloomberg Dollar Index was little changed.
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The euro was little changed at $1.0925.
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The pound rose 0.2% to $1.2712.
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The Japanese yen fell 2.2% to 147.48 yen per dollar.
Cryptocurrencies
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Bitcoin fell 0.7% to $56,184.24
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Ether price fell 3.5% to $2,401.88
Bonds
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The yield on the 10-year US Treasury note rose five basis points to 3.94%.
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The yield on the 10-year German bond rose by seven basis points to 2.27%.
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The yield on 10-year British bonds rose three basis points to 3.95%.
Goods
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West Texas Intermediate crude rose 3% to $75.38 a barrel.
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Spot gold rose 0.2 percent to $2,394.54 an ounce.
This story was produced with the help of Bloomberg Automation.
–With assistance from Robert Brand, Sujata Rao, and Winnie Hsu.
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