Yen Spikes, Oil Prices Surge, and Bond Markets React Globally
Global Market Movements and Economic Reactions
By Jamie McGeever
ORLANDO, Florida, Sept 2 (Reuters) - The Japanese yen leaped against the dollar on Wednesday, its biggest rise since joint U.S.-Japanese intervention a month ago, while U.S. Treasuries shrugged off the wider bond market selloff that pushed Japanese and European yields to fresh historical highs earlier in the day, and Wall Street closed higher.
In my column today, I look at why China has escaped the global bond rout. Hint: It's not because investors see China as a picture of economic and fiscal health.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
Recommended Reading
1. G20 finance chiefs except China back action on distorted trade
2. The 'real' deal — world bonds grind towards higher neutral rates: Mike Dolan
3. Trump pledged fiscal restraint. Instead, debt tops $40 trillion as borrowing costs rise
4. The history of financing America, in six crisis episodes
5. Bull or bear market? AI spurs rethink of traditional market measures
Today's Key Market Moves
Stock Market Performance
• STOCKS: Japan -3%, South Korea -4%, Europe little-changed. S&P 500 and Nasdaq +0.5%.
Sectors and Shares
• SECTORS/SHARES: 10 sectors on the S&P 500 rise, one falls. Comms services +1%, real estate -0.8%. Dell +16%, Nvidia +3%, Broadcom -7% after the bell on Q3 results.
Foreign Exchange Movements
• FX: Dollar/yen slumps 1%, below 159.00. Brazilian real biggest FX gainer, +1.2%.
Bond Market Developments
• BONDS: 10-year JGB yield up to 3.015%, gilt yields highest in nearly 20 years
Commodities and Metals
• COMMODITIES/METALS: Oil +1% to 6-week high.
Today's Talking Points
Yentervention?
The yen's jump on Wednesday followed strong hints from Japanese policymakers this week that interest rates will rise later this month. U.S. Treasury Secretary Scott Bessent also appeared to endorse tighter policy in Tokyo. The yen's rise of around 1% was its strongest since joint U.S.-Japanese intervention a month ago — indeed, analysts said central bank activity may have been behind the move, although probably a "rate check" rather than direct yen buying.
US Influence on Japanese Policy
This opens a wider debate, around the growing U.S. influence over Japanese policy. The U.S. was involved in the yen-buying operation with Japan a month ago, and it seems clear that the Treasury is uncomfortable with the dollar above 160.00 yen, and also wants to avoid a scenario where Japanese intervention involves the sale of U.S. bonds. Is Japanese policy being set in Tokyo or Washington?
Hire or Lower?
U.S. labor market data so far this week, ahead of the key non-farm payrolls report on Friday, suggests hiring remains extremely subdued. While the latest 'JOLTS' report on Tuesday showed job openings rose by 89,000 in July, hiring fell by 278,000. The latest ADP report on Wednesday showed that private sector payrolls rose by only 38,000 in August, less than expected.
Implications for Federal Reserve Policy
Something for the dwindling band of policy doves to cling onto? Perhaps, but it would take an almighty downside surprise on Friday to put rate cuts back on the table. The Fed's center ground is shifting towards higher rates. President Donald Trump won't like it, but if a rate hike or two cools inflation, flattens the curve, and brings down longer-dated borrowing costs like mortgage rates, he may come around.
Oil's Toll
Fiscal concerns, crowding out from AI issuance, rising risk premia, and a good old-fashioned investment boom are some of the factors said to be driving bond yields higher. There may be some merit in all of them. But the resurgent oil price is emerging as one of the most significant.
Oil and Treasury Yield Correlation
Benchmark crude is up 25% in less than a month, and is now up more than 40% on a year-on-year basis. The correlation between oil and the 10-year Treasury yield is strengthening significantly too. At what point do high energy prices start to choke consumer spending?
What Could Move Markets Tomorrow?
• Japan, euro zone, UK, US services PMIs (August)
• Euro zone producer prices (July)
• US services ISM (August)
• US weekly jobless claims
• US Federal Reserve officials scheduled to speak include Governor Christopher Waller, Cleveland Fed President Beth Hammack, Chicago Fed President Austan Goolsbee
Newsletter and Disclaimer
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(Reporting by Jamie McGeever;)
