PARIS (Reuters) – Wall Street is expected to open higher on Wednesday while Europe is up mid-session, with relief sweeping markets after reassuring comments from the Bank of Japan that ward off the risk of further pressure on indices caused by the unwinding of yen-funded carry strategies.
New York index futures suggest Wall Street will open in the green, with the Dow Jones up 0.78%, while the Standard & Poor’s 500 is up 1.09% and the Nasdaq is up 1.3%.
In Paris, the CAC 40 rose by 1.61% to 7,244.86 points at around 10:30 GMT. The Dax in Frankfurt strengthened by 0.99%, while the FTSE in London rose by 1.39%.
The EuroStoxx 50 index is up 1.62%, the FTSEurofirst 300 1.28% and the Stoxx 600 1.32%.
Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said on Wednesday the central bank would not raise rates during periods of market instability, dismissing the prospect of further monetary tightening that would have supported the yen and raised yen financing costs.
The currency, which has been volatile since the start of the US monetary tightening cycle, fell by more than 2% after the announcements.
The announcement supports risk assets worldwide, which have come under pressure in recent days from the unwinding of yen-funded carry strategies.
Investors are borrowing in yen to buy dollar assets, taking advantage of the weakness of the Japanese currency and the low financing costs enabled by the Bank of Japan’s low rates to buy assets with higher yields.
But these three factors have turned on each other: the BoJ’s rate hike at the end of July has increased financing costs and strengthened the yen against the dollar, while the fall in US stocks has pushed traders to unwind their positions as quickly as possible.
The BoJ’s comments therefore remove some of the selling pressure.
“The interest rate spreads remain high (between the United States and Japan), but the volatility shock should permanently exclude carry strategies” based on the yen, notes Olivier Korber, Forex and derivatives strategist at Société Générale, who estimates that most of the positions linked to carry strategies have been closed.
“In July, stronger expectations of Fed easing were the key factor triggering the reversal of this strategy, allowing the BoJ to support the yen and raise rates. The first increase in real wages in Japan since 2022 suggests further increases,” the strategist also warns.
Meanwhile, the latest data from the United States are dispelling fears of a recession, with the GDPnow indicator calculated by the Federal Reserve of Atlanta suggesting annualised growth of 2.9% across the Atlantic.
VALUES TO FOLLOW ON WALL STREET
Airbnb said Tuesday it expected third-quarter revenue to fall short of Wall Street estimates and reported a decline in second-quarter profit, as demand from U.S. customers weakened.
Super Micro Computer said Tuesday it expected first-quarter profit to be below consensus, although it is banking on strong demand for its artificial intelligence servers. Shares fell 11.1% before the open.
VALUES TO FOLLOW IN EUROPE
ABN Amro raised its net interest income forecast for this year on Wednesday, rising by 4.4%.
Novo Nordisk on Wednesday lowered its forecast for operating profit growth for this year, after sales of Wegovy fell by 2.2%, falling below expectations.
Puma on Wednesday cut its full-year operating profit forecast range, citing expected higher transportation costs and continued weak consumer sentiment, and saw its profit fall 12.4 percent.
Commerzbank announced on Wednesday its intention to buy back shares worth 600 million euros, after reporting a net profit in line with expectations for the second quarter. The share price nevertheless fell 5%.
Continental announced on Wednesday that its adjusted second-quarter profit exceeded expectations and rose 6.5 percent.
Maersk said on Wednesday that global demand for container shipping is expected to grow at a slower pace in the coming quarters, declining 1.3%.
British advertising group WPP agreed on Wednesday to sell its majority stake in financial public relations agency FGS Global to US fund KKR for $775 million, giving up 2.4%.
RATE
Risk appetite is pushing up yields on sovereign securities, considered safe assets and which had clearly benefited from the stock market turbulence at the start of the week.
The yield on 10-year Treasuries rose 4.6 basis points to 3.9335%. The two-year rose 4.5 basis points to 4.0302%.
The yield on the ten-year German Bund rose 9.9 basis points to 2.2810%. The two-year rose 7 basis points to 2.4330%.
CHANGES
The dollar continues to recover against other currencies, particularly the euro, with operators now expecting only 100 basis points of rate cuts in the United States in 2024, compared to 130 bp expected during Monday’s session.
The dollar advanced 0.22% against a basket of benchmark currencies, while the euro eroded 0.10% to $1.0919.
OIL
Geopolitical tensions in the Middle East are supporting the barrel.
Brent gained 1.5% to $77.63 per barrel, while US light crude (West Texas Intermediate, WTI) gained 1.5% to $74.29.
NO MORE MAJOR ECONOMIC INDICATORS ON THE AGENDA FOR AUGUST 7
(Written by Corentin Chappron, edited by Kate Entringer)
Copyright © 2024 Thomson Reuters
I have over 8 years of experience working in the news industry. I have worked as a reporter, editor, and now managing editor at 247 News Agency. I am responsible for the day-to-day operations of the news website and overseeing all of the content that is published. I also write a column for the website, covering mostly market news.
