Nikkei 225, TOPIX, USD/JPY, US Non-Farm Payrolls, SGX, Xi Jinping – Talking Points
- Japanese equities run higher as PM Suga’s resignation quells uncertainty
- USD/JPY struggled to sustain an attempt higher as yields anchored USD
- Risk assets perky ahead of US jobs data. Will US yields move markets?
Japanese Prime Minister Yoshihide Suga resigned today, indicating that he would not be seeking leadership re-election within the ruling LPD. The shock announcement came as the PM said the energy required to deal with the ongoing Covid-19 Delta outbreak would not allow him to put in the appropriate amount of effort to campaign.
A number of commentators are asking if the power brokers that installed Mr Suga wanted a change of leader before facing the electorate. Speculation had been building for a potential October election.
The Nikkei 225 swiftly lifted on the news and the Topix made a 30-year high as the markets perceived a degree of certainty would ensue once a new leader is appointed. It is also expected that whoever takes the reins will announce further stimulus measures.
With equities breaking higher ground, an initial risk-on push didn’t last in the FX space, with USD/JPY trying to run above 110.00 but ultimately unable to follow through. APAC stock indices were mainly in the green, with the exception of the Chinese bourses that all moved lower.
President Xi Jinping announced the launch of a third stock exchange to be based in Beijing, to complement the existing two main venues in Shanghai and Shenzen. The new exchange will be focused on allowing funding for local small to medium size businesses via issuing shares rather relying on debt funding, which has been problematic. The announcement comes at a time when the Chinese Communist Party is cracking down on many listed business sectors.
Evergrande Group, the massive Chinese property company, had their local currency bond suspended today due to “irregularities’. The share price languished further and a default on their estimated USD 300 billion plus in liabilities would have ramifications for markets. Their USD-denominated bonds are trading at less than 30 cents on the dollar.
The Singapore Exchange allowed special purpose acquisition vehicles (SPAC) to be listed on the SGX from today. The investment vehicles have been well-received in the US for some time but are coming under scrutiny by the SEC. As global central banks flood markets with liquidity, SPACs allow for fast-tracking fundraising relative to traditional methods.
WTI crude held above US$70 a barrel in Asia after Exxon tapped oil reserves in the US session due to Hurricane Ida hampering output.
Non-farm payrolls are ahead of us and will be closely watched after some of the preliminary outlier jobs data earlier in the week.
USD/JPY, NIKKEI 225, US 10-YEAR YIELD
The Japanese Yen initially weakened when PM Suga resigned but a risk-on response was limited to Japanese equities and the selling of Yen short lived on. The relationship between USD/JPY and US 10-year Treasury yields appears to be strong and US jobs data later today may provide some impetus for rates and the currency pair to move.
— Written by Daniel McCarthy, Strategist for DailyFX.com
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