Asia’s stock markets started the fourth quarter with a cautious tone on Monday, as trading volumes were thin due to holidays in India, Hong Kong, and China. The dollar remained firm, and a last-minute agreement to avoid a U.S. government shutdown boosted S&P 500 futures.
Japanese stocks initially surged, with the Nikkei jumping as much as 1.7% before paring its gains and settling at flat in the afternoon. The yen weakened against the U.S. dollar, approaching 150 per dollar, which benefits exporters by making their foreign earnings in yen more valuable.
The eleventh-hour deal to avert a U.S. government shutdown over the weekend also boosted the mood in Asian markets, lifting U.S. stock futures by 0.5%. The temporary funding bill allows the government to continue operating until November 17, ensuring that key data releases, including the monthly payrolls report, will proceed as scheduled.
European futures rose by 0.2%, but TD Securities strategists warned that the shutdown risks are only delayed, not eliminated. They noted that while reduced uncertainty may provide some relief in the markets, volatility is likely to remain elevated as investors await top-tier data as the next catalyst.
Japanese stocks were further boosted by the Bank of Japan’s quarterly Tankan survey, which showed an improvement in business sentiment. However, MSCI’s broadest index of Asia-Pacific shares outside Japan remained flat.
Bond and foreign exchange trade continue to be driven by expectations of high U.S. interest rates, leading to selling in Japanese bonds. As a result, benchmark 10-year Japanese government bond yields rose to their highest level in a decade at 0.775%. In response, the Bank of Japan announced plans to buy bonds with 5-10 years to maturity on Wednesday.
The dollar stood tall in currency markets, supported by relative U.S. growth resilience and the hawkish stance of the Federal Reserve. However, the dollar fell short of last week’s milestone highs against most currencies except for the yen, where it reached its highest level since October.
Mixed factory surveys in China and expectations of no changes to interest rate settings at central bank meetings in the coming days put pressure on the Australian and New Zealand dollars. The Australian dollar fell by 0.5% to $0.6400, while the New Zealand dollar slipped by 0.2% to $0.5986. The euro was slightly weaker at $1.0564.
Crude oil prices stabilized after falling at the end of last week. Brent December crude futures rose by 16 cents, or 0.2%, to $92.36 a barrel, while U.S. West Texas Intermediate crude futures gained 20 cents, or 0.1%, to $90.99 a barrel.
Overall, the market sentiment remains cautious as uncertainties persist, even with the temporary resolution of the U.S. government shutdown. Traders are closely watching for top-tier data releases that could potentially impact market volatility.
(Reporting by Kevin Buckland; Additional reporting by Tom Westbrook; Editing by Edwina Gibbs & Simon Cameron-Moore)