Economy

TOKYO (Reuters) – Japanese stocks rebounded sharply in early trade on Tuesday, after their biggest single day rout since the 1987 Black Monday sell-off in the previous session.The Nikkei rallied 8.1% at 34,004.22 as of 0026 GMT, while the broader Topix was up 8.57%. The Nikkei plunged 12.4% on Monday in its worst performance since the October 1987 crash, as investors were shaken by last week’s plunge in global stock markets, U.S. recession risks and worries investments funded by a cheap yen were being unwound.Monday’s collapse was a “reminder that it is next-to-impossible to diversify equity risk by region (or by sector or style) during major corrections or bear markets,” said Stephen Dover (NYSE:DOV), chief market strategist and head of Franklin Templeton Institute at Franklin Templeton. “Opportunity will arise, but in our view, it is premature to step in at this point.” More

SINGAPORE (Reuters) – The U.S. dollar was nursing steep losses on Tuesday, with the yen on the back foot after a sharp rise in the previous session as traders contend with unwinding of popular carry trades and the prospect of deep rate cuts from the Federal Reserve. The yen was 1% lower on Tuesday at 145.78 per dollar in early trading, after rising for five straight sessions and touching a seven-month high of 141.675 on Monday. The yen was also lower against the Australian dollar, euro and sterling.Last week’s softer-than-expected U.S. jobs data, along with disappointing earnings from major tech firms and heightened concerns over the Chinese economy, have sparked a global sell-off in stocks, oil and high-yielding currencies.On Monday, the global rush out of riskier assets took a staggering turn, with equity markets in meltdown mode as worries that the U.S. is heading for a recession roiled investors. U.S. central bank policymakers pushed back on Monday against the notion that weaker-than-expected July jobs data means the economy is in recessionary freefall, but also warned that the Federal Reserve will need to cut rates to avoid such an outcome.”Sell-offs that manifest themselves through wild swings in the currency markets are sharp and swift, but usually very short lived,” said Jamie Cox, managing partner at Harris Financial Group.”Markets are clearly nervous about the divergent paths central banks are taking, leading to lots of volatility.” Traders are now anticipating 109 basis points (bps) of easing this year from the Fed, with a 50 bps cut in September priced in at 75% chance, CME FedWatch tool showed. The surge in the yen also comes in the wake of the Bank of Japan hiking interest rates last week and a sharp position unwind of carry trades, where investors have borrowed money from economies with low interest rates such as Japan or Switzerland, to fund investments in higher-yielding assets elsewhere. The yen’s fortunes have shifted since Tokyo stepped in to prop up the currency last month, lifting it away from the 38-year lows of 161.96 per dollar it was rooted to barely a month ago. “The conditions had been ripe for yen funded carry trades for some time,” said James Athey, fixed income portfolio manager at Marlborough Investment Management, referring to wide interest rate differentials between the U.S. and Japan, prohibitive hedging costs for Japanese investors and low equity volatility. “However yen undervaluation had become extreme and all the other conditions were shifting and much like in 2008 when that occurs the yen appreciation can be swift and aggressive.”The dollar index, which measures the U.S. unit versus six rivals, was flat at 102.87 in early trading after touching a seven-month low of 102.15 on Monday. The euro was little changed at $1.095275, while the sterling was slightly stronger at $1.2789. More

TOKYO (Reuters) -Japan’s inflation-adjusted real wages rose in June for the first time in more than two years as nominal pay gained at the fastest pace in nearly three decades, data showed, backing the central bank’s view that wage increases are broadening.However, household spending fell more than expected in the same month, clouding the outlook for the Bank of Japan’s plan to steadily raise interest rates.The latest market rout, which came in the wake of the BOJ’s decision last week to raise interest rates, may also dampen consumer sentiment, some analysts say.Real wages grew 1.1% in June, rising for the first time in 27 months, after a revised 1.3% drop in May, data from the labour ministry showed on Tuesday.Nominal wages, the average total cash earnings per worker, grew 4.5%, the fastest pace of growth since January 1997, to 498,884 yen ($3,480), the data showed.Regular pay for permanent workers rose 2.7% in June after a revised 2.6% gain in May, a sign the bumper pay hikes offered by firms in this year’s wage negotiations are pushing up household income.But separate data released on Tuesday showed household spending fell 1.4% in June from a year earlier, more than a median market forecast for a 0.9% drop, suggesting that rising living costs are discouraging consumers from boosting spending.($1 = 143.3800 yen) More

Consumer spending contracted 1.4% in June from a year earlier, worse than the median market forecast for a 0.9% decline.On a seasonally adjusted, month-on-month basis, spending increased 0.1% versus an estimated 0.2% uptick.To view the data on the website of the Ministry of Internal Affairs and Communications, click here: http://www.stat.go.jp/english/data/kakei/index.html More

NEW YORK (Reuters) – The New York Federal Reserve said it accepted $316.246 billion submitted to its overnight reverse repo facility on Monday, the lowest since May 2021.That was down from $338.473 billion on Friday. Analysts said investors may have pulled their money from the reverse repo market and placed cash in the overnight repo market, where banks and financial firms such as hedge funds borrow short-term cash using Treasuries or other debt securities as collateral.”As investors sell off risk assets, they typically move into cash, which generally gets invested in the repo market,” said Scott Skyrm, executive vice president for fixed income and repo at broker-dealer Curvature Securities in New York. Reverse repos, on the other hand, are conducted by the New York Fed’s Open Market Trading Desk and is a key tool to manage short-term rates. In a reverse repo, market participants lend cash to the Fed, usually overnight, at an interest rate of 5.30%, in exchange for Treasuries or other government securities, with a promise to buy them back.Lou Crandall, chief economist at money market research firm Wrightson, said there were likely “increased market funding needs following Friday’s rally (in Treasuries)”, which provided money funds an incentive to place their cash in private repos.The move into repos amid a stocks meltdown, as opposed to the Fed’s reverse repo facility, was likely the reason for some softness in repo rates on Monday, Curvature’s Skyrm said, adding that lower repos could continue all through this week.Still GC repo rates are still higher than those on reverse repos.Data from Curvature Securities showed that the general collateral (GC) repo rate started the financial market session at 5.45%, hitting a low of 5.28% before closing at 5.35% on Monday.The GC rate refers to the level or figure corresponding to a basket of securities that trade normally. GC securities can be substituted for one another without changing the repo rate.In addition, a large rise in the supply of Treasury bills on Tuesday and Thursday, is likely to further drain cash from the RRP facility, analysts said. More

NEW YORK (Reuters) – A recent U.S. Treasuries rally, fueled by expectations of significantly lower interest rates, is overdone as the economy’s resilience may make it unnecessary for the central bank to lower borrowing costs by as much as the market bets, a BlackRock (NYSE:BLK) portfolio manager said.However, the Fed should have started lowering rates last month to gradually shift toward easier monetary policy, he added.U.S. Treasury yields, which move inversely to prices, have declined sharply after weak manufacturing data and employment data released last week sparked recession fears and a sharp repricing of bets on monetary policy for the rest of this year.The rally has made Treasury valuations less attractive, said David Rogal, portfolio manager of BlackRock’s Fundamental Fixed Income Group, in an interview. “We have definitely been more favorable on bonds here but it’s hard to be too constructive at these valuations.”The rally lost some momentum on Monday, but the two-year U.S. Treasury yield remained about 50 basis points lower than a week earlier, and the benchmark 10-year yield has shed 40 basis points over the past week. On Monday, investors were betting on about 114 basis points in rate cuts for 2024, nearly double the easing expected last week.The Fed is still expected to start easing at its next meeting in September.Further Treasury price advances would reflect a rapid weakening of economic growth. However, if the Fed lowers interest rates, Rogal said, he would expect a so-called economic soft landing, a scenario in which inflation decreases without a major slowdown.Still, he said the central bank should have started cutting rates by 25 basis points at the end of its meeting last week, when it kept policy rates unchanged at 5.25%-5.5%.”Some of what the markets are reacting to is a Fed that now looks a little bit more behind the curve,” said Rogal. This increases the chances of a bigger, 50 basis point cut in September that could seem “a little panicky.” More

“It’s clear inflation is coming down closer to our target. It’s clear that the labor market is slowing and it’s to a point where we have to balance those goals,” Daly said at an event in Hawaii.And while the Fed has so far left its policy rate unchanged, its recent shift in its communications to acknowledge the risks to its two goals are in balance is in itself a policy adjustment, she said. More

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