Asia shares up as China extends rally; Japanese yields a risk

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Asian Markets Conclude Week on Strong Note Amid Economic Reports, Central Bank Meetings, and Earnings Updates, but Rising Japanese Government Yields Pose a Risk

Asia shares up: China surveys were mixed, with factory activity barely above predictions but services falling short; however, both results just confirmed concerns that Beijing would eventually need to introduce more significant stimulus measures.

Chinese blue chips added 1.6%, appearing unconcerned and increasing gains for July to 5.6%. The largest MSCI index of Asia-Pacific shares outside of Japan increased by 1.1% after increasing by about 6% so far in July to hit five-month high.

Following US data released on Friday indicating a decline in core inflation and wage costs, which fueled optimism Federal Reserve had finished tightening, the markets initially saw bullish boost.

According to Bruce Kasman, head of economic research at JPMorgan, “the data surprises strengthen confidence that global core inflation, excluding China, will fall sharply and set the stage for a developed market central bank policy pause and emerging market easing even if growth remains firm.”

The July payrolls report, the US ISM manufacturing and services surveys, and the European inflation report are all expected this week.

Although markets are less united on whether the Reserve Bank of Australia will increase rates or remain on hold, it is largely believed that the Bank of England will increase rates by at least a quarter point.

This week, almost 30% of the S&P 500 will release results, and thus far, earnings have been strong enough to help the index continue its uptrend and reach 10% since the beginning of June.

On Monday, the S&P 500 futures increased by 0.1%, pushing their gains for the month of July to about 3%. At the same time, Nasdaq futures remained nearly unchanged.

On Thursday, Apple Inc. and Amazon.com both release earnings, while Western Digital Corp., Caterpillar Inc., Starbucks Corp., and Advanced Micro Devices are among the well-known companies that also have results forthcoming.

Reviewing the BOJ

The Nikkei index of Japan increased 1.8%, retaking the 33,000 mark and moving up towards its most recent three-decade top.

Investors are still debating the effects of the Bank of Japan’s (BOJ) shocking move to hike the ceiling on bond yields on Friday, a departure from its ultra-easy policies.

According to analysts at BofA, the BOJ’s bond purchases increased global liquidity by $1.3 trillion over the previous 18 months and provided a low floor for interest rates globally, so any persistent increase in Japanese government bond yields might have an impact on foreign bond markets.

On Monday, Japanese 10-year rates increased further to 0.6%, still below the new cap of 1.0%.

The BOJ move initially caused the yen to rise, but it quickly lost ground as investors continued to run carry trades, or yen-funded positions in higher-yielding currencies.

In his statement, Ray Attrill, head of FX strategy at National Australia Bank, described Friday’s action as an attempt to head off a fresh wave of yen-weakening carry trade activity. He added that they are at least ceasing to resist pressure for 10-year yields to rise above 0.5%.

However, “Friday’s actions do not serve as catalyst for a secular reversal of yen weakness.”

The dollar increased to 141.55 yen on Monday, which was significant increase from the yen’s recent low of 138.05.

Additionally, the euro had bounced back from its initial decline to stand at 155.97 yen, while maintaining its previous week’s wild swings at $1.1020.

In the commodities market, gold was down slightly at $1,957 per ounce after increasing by almost 2% so far this month.

As OPEC+ output curbs squeezed supply, oil prices took a break after five straight weeks of rising prices.

While US crude fell 3 cents to $80.55, Brent was down 14 cents at $84.85 per barrel.

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