Japanese Stocks Plummet on Rate Hike Worries: Markets Wrap

(Bloomberg) -- Japanese shares slumped on Monday after ruling party elections raised expectations of further central bank interest rate hikes. Iron ore jumped after major Chinese cities loosened curbs on home-buying.

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The Nikkei and Topix indexes both fell at the open following Shigeru Ishiba’s victory at the Liberal Democratic Party leadership contest. Ishiba has said he supports the Bank of Japan’s independence and normalization path in principle, and that the country needs to defeat deflation. The yen, which surged after Ishiba was picked, declined on Monday.

“It’s about the dollar-yen,” Daniel Lam, head of equity strategy at Standard Chartered Wealth Solutions, told Bloomberg Television’s Shery Ahn and Haidi Stroud-Watts. “The new leadership is going to be more hawkish in their stance.”

Australian shares rose and Korean equities slipped while Hong Kong futures were flat. US contracts were up marginally. Iron ore futures surged in Singapore after the cities of Shanghai, Guangzhou and Shenzhen eased rules on housing purchases, following through on the central government’s latest efforts to prop up the embattled property sector.

Markets are heading into the final quarter as global economic outlook improves following China’s stimulus measures and as central banks from Indonesia to Europe and the US begin cutting interest rates to support growth. US stocks are set to outperform Treasuries for the remainder of the year, while emerging markets are preferred to developed ones, according to the latest Bloomberg Markets Live Pulse survey.

Traders are preparing for big swings in Chinese stocks Monday as economic activity data are released in the last trading session before markets shut for Golden Week, after the benchmark CSI 300 notched its best week since 2008. The Shanghai Stock Exchange ran weekend stress tests with brokerages after its systems struggled to cope with a surge in trading activity on Friday.

The renewed demand comes after authorities ramped up efforts to revive growth with pledges to support fiscal spending and stabilize the property sector. Stephen Jen, chief executive at Eurizon SLJ Capital said a “serious rally” in stocks, yuan and government bonds is entirely possible with investors underweight the nation’s assets.

Still, sentiment globally may be dampened Monday should tensions in the Middle East escalate. Oil steadied after Israel’s killing of Hezbollah’s leader, Hassan Nasrallah, in Beirut, with the market waiting to see how Iran will respond.

Iran’s embassy in Beirut said Israel’s strikes are a dangerous escalation and will bring about the appropriate punishment. President Masoud Pezeshkian however has stopped short of pledging a direct and immediate attack on Israel in retaliation.

“For markets, it boils down to what Iran decides to do,” Minna Kuusisto at Danske Bank wrote in a note to clients. “A full-blown war in Lebanon would bring another war right at Europe’s doorstep.”

This week, traders will be paying close attention to China’s official and Caixin manufacturing and services PMIs Monday before markets shut for Golden Week. Eurozone inflation and manufacturing activity data are due before the US jobs report on Friday that will help assess the outlook for Federal Reserve rate cuts into year-end.

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 9:05 a.m. Tokyo time

• Hang Seng futures were little changed

• Japan’s Topix fell 2.7%

• Australia’s S&P/ASX 200 rose 0.6%

• Euro Stoxx 50 futures rose 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1169

• The Japanese yen fell 0.3% to 142.64 per dollar

• The offshore yuan was little changed at 6.9765 per dollar

Cryptocurrencies

• Bitcoin fell 0.5% to $65,485.82

• Ether fell 0.2% to $2,655.15

Bonds

• The yield on 10-year Treasuries was little changed at 3.75%

• Australia’s 10-year yield declined two basis points to 3.94%

Commodities

• West Texas Intermediate crude rose 0.1% to $68.26 a barrel

• Spot gold rose 0.3% to $2,665.23 an ounce

This story was produced with the assistance of Bloomberg Automation.

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