(Bloomberg) — Asian shares swung between gains and losses on Thursday as investors weigh the risks to global markets after a volatile week when policy decisions by central banks raised uncertainty.
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Japan’s Topix Index fell again Thursday after rebounding from an earlier loss of as much as 1.8%. Benchmarks in China and Hong Kong gained, while declining in Korea and Australia declined. MSCI’s Asia-Pacific Index edged lower, and was off 1.9% on the week so far. The dollar weakened against major currencies, including the yen.
A Thursday summary of opinions from last week’s Bank of Japan meeting, when it raised rates, showed one member identify the neutral rate at 1%, while another called for timely rate increases to avoid rapid hikes.
Global markets have been rocked in the past week as investors prepare for the US and Japanese central banks to move in opposite directions, in turn undermining the yen’s role as a cheap source of funding for financial assets.
It is “consolidation period before any new trend, given how volatile the market has been,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “Investors probably will stay sidelined until new data appear. The next couple of days will be crucial — either calm returns, or we see a new bout of volatility emerge.”
Both the Nikkei 225 and the Topix have recovered about half of their losses since the end of July, when the Bank of Japan raised its key rate. Japan’s benchmark 10-year yield fell for a second day.
Three-quarters of the carry trade has been unwound as the recent slump wiped out all positive year-to-date returns, according to strategists at JPMorgan Chase & Co.
The carry strategy — which involves borrowing at low rates to fund purchases in higher-yielding assets elsewhere — has been wobbling for months. Carry trades were pummeled over the past week as global market volatility jumped amid fears of rapid Federal Reserve rate cuts and after the Bank of Japan’s larger than expected rate hike.
The unspooling of the carry trade has further room to run but the declining velocity of the shift allows investors to breathe “a sigh of relief,” according to Quincy Krosby at LPL Financial. “A softer dollar, driven by the markets perception that the Fed will soon initiate an easing cycle, should help support a stronger yen — a negative for the trade.”
Story continues
Investors are watching for US jobless claims data Thursday to get more cues. Markets have been in a tailspin since weak economic data last week fueled worries that the Fed’s decision to hold rates at a two-decade high is risking a deeper economic slowdown.
The dollar was weaker Thursday, reversing moves from the prior session. Lackluster demand for a 10-year Treasury auction and $31.8 billion in debt offerings from blue-chip companies were headwinds.
The Treasury auction result is “consistent with our view that we’re due for a continued correction higher in yield in the near-term,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. “The repricing following what was really just a moderately weak payrolls report seems way overdone.”
Lasertec shares surge as much as 23%, the most since January 2015, after the Japanese semiconductor company reported strong fourth quarter results from record orders.
Oil steadied after its biggest advance in a week, with the market on edge over a possible retaliatory strike by Iran on Israel as payback for assassinations of Hamas and Hezbollah leaders.
Key events this week:
Germany industrial production, Thursday
US initial jobless claims, Thursday
Fed’s Thomas Barkin speaks, Thursday
China PPI, CPI, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 1:30 p.m. Tokyo time
Nikkei 225 futures (OSE) fell 0.3%
Japan’s Topix fell 0.4%
Australia’s S&P/ASX 200 fell 0.3%
Hong Kong’s Hang Seng rose 0.7%
The Shanghai Composite rose 0.4%
Euro Stoxx 50 futures fell 0.9%
Nasdaq 100 futures rose 0.2%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.1% to $1.0936
The Japanese yen rose 0.3% to 146.21 per dollar
The offshore yuan rose 0.3% to 7.1656 per dollar
The Australian dollar rose 0.6% to $0.6559
Cryptocurrencies
Bitcoin rose 3.4% to $57,031.84
Ether rose 3.6% to $2,435.25
Bonds
The yield on 10-year Treasuries declined three basis points to 3.91%
Japan’s 10-year yield declined two basis points to 0.855%
Australia’s 10-year yield was little changed at 4.08%
Commodities
West Texas Intermediate crude rose 0.1% to $75.31 a barrel
Spot gold rose 0.5% to $2,393.81 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi.
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