Asian equities rise as yen stabilises after recent drop

Asian markets showed modest gains on Tuesday, driven primarily by a rise in Japanese stocks. This positive movement in equities came as the yen showed signs of recovery after a week of weakness against the dollar.

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In contrast, South Korean and Chinese markets exhibited mixed performances, while Australian stocks experienced a downturn.

Also read: Australia’s ASX 200 index rallies as big banks and miners diverge

Japanese and Korean equities rise as yen strengthens

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On Tuesday, Japanese equities led the charge in the Asian stock markets, with the Nikkei 225 and Topix indices both registering gains. This upward trend followed a period of uncertainty and a decline in the yen’s value.

The yen, which had been weakening against the US dollar for four consecutive sessions, found some stability, strengthening slightly in the early hours of trading.

In South Korea, the Kospi index also experienced a rise, although it was modest. This came amid new inflation data that indicated a slowdown in price increases.

Specifically, year-over-year inflation in August rose at the slowest pace since 2021, providing some relief to investors.

Mixed performance in Chinese benchmarks

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Chinese stock markets displayed a mixed performance on Tuesday. While some indices showed gains, others struggled to maintain momentum.

This mixed performance aligns with recent economic data suggesting ongoing challenges within China’s economy.

On Saturday, data revealed that Chinese factory activity had contracted for the fourth consecutive month in August, casting doubt on the nation’s ability to achieve its growth targets for the year.

S&P 500 futures slip ahead of Wall Street’s reopening

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In the United States, S&P 500 futures dipped as traders awaited the reopening of Wall Street following the Labour Day public holiday.

Source: Tradingview

The futures market’s cautious stance reflects concerns about the broader economic outlook. Traders will closely monitor upcoming American manufacturing data for insights into the health of the US economy.

This week will culminate with the release of nonfarm payrolls data on Friday, which is expected to provide further clues about the job market and economic conditions.

Treasuries and dollar index remain steady

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US Treasuries and the dollar index showed little movement, maintaining stability amid the mixed economic signals.

Despite fluctuations in equity markets, the broader financial landscape remained relatively unchanged, with investors awaiting further data to guide their decisions.

Pimco and Julius Baer weigh in on yen’s future

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In commentary on the yen’s outlook, Pimco Japan Ltd. projected a potential rate increase by the Bank of Japan as early as January.

However, Mark Matthews, head of Asia research at Julius Baer, suggested that the yen might continue to weaken due to substantial interest rate differentials between the US and Japan.

Matthews noted that the expected policy rate gap between the Bank of Japan and the Federal Reserve remains significant, potentially keeping the yen on a depreciating trend.

US interest rate expectations

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Traders are speculating about potential changes in US interest rates, with a roughly one-in-four chance of a 50 basis-point cut this month.

JPMorgan Chase & Co. strategists, led by Mislav Matejka, have cautioned that any rate cut could be countered by slowing growth and challenging seasonal trends.

Matejka emphasised the need for caution, highlighting that defensive sectors may be more prudent given current market uncertainties and geopolitical risks.

Focus on China’s economic challenges

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Asian traders will continue to monitor China closely for any signs of economic distress. The contraction in Chinese factory activity raises concerns about the country’s economic trajectory and its ability to meet growth expectations.

The broader impact of these economic troubles on global markets will be an area of keen interest for investors moving forward.