Markets Overview

  • ASX SPI 200 futures down 0.5% to 7,594.00
  • Dow Average down 0.6% to 38,763.45
  • Aussie little changed at 0.6519 per US$
  • US 10-year yield rose 4.9bps to 3.9411%
  • Australia 3-year bond yield rose 4.7 bps to 3.69%
  • Australia 10-year bond yield rose 5.8 bps to 4.08%
  • Gold spot down 0.3% to $2,382.85
  • Brent futures up 2.6% to $78.46/bbl

Economic Events

  • 10:30: (AU) Australia to Sell A$1 Billion 175-Day Bills
  • 10:30: (AU) Australia to Sell A$1 Billion 91-Day Bills
  • 12:40: (AU) Speech by Michele Bullock, Governor
  • 16:30: (AU) July Foreign Reserves, prior A$94.9b

Asian equities fell Thursday, continuing a bout of volatile trading as investors digest signals from central banks on the path ahead for interest rates.

Japan’s Topix Index dropped alongside benchmarks in Australia, South Korea, Taiwan and China, with tech giants in the region among the hardest hit. A region-wide gauge of the tech sector fell by around 2%, with the likes of SK Hynix Inc. down as much as 4.8% and Taiwan Semiconductor Manufacturing Co. falling as much as 2.8%. That followed a 1.2% drop for the tech-heavy Nasdaq 100 Index on Wednesday.

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.

The yen resumed its rally on Thursday, having dropped 1.6% against the dollar on Wednesday, when the Bank of Japan’s deputy governor said the central bank would not raise interest rates during periods of market volatility. A Thursday summary of opinions from last week’s BOJ 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.

The summary “may have triggered some selling at margin, given there was a call to raise interest rates to 1%,” said Kohei Onishi, senior investment strategy researcher at Mitsubishi UFJ Morgan Stanley Securities.

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.”

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 dollar was slightly weaker Thursday as yields fell in Asian trading, partly 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.”