Extraordinary rally rips through all markets

After an unexpectedly bold move from the Bank of Japan, the Federal Reserve indicating that US rates are about to come down, and an explosive rise in US megacap stocks on Wednesday, investors may be in need of some respite on Thursday.

Good luck with that.

Aside from the continuing ripples across all asset classes from the BOJ, Fed and tech boom, a wave of manufacturing PMIs from China and across Asia lands and investors are bracing for more Big Tech earnings and a possible Bank of England rate cut.

Thursday is also the first trading day of the month, and investors may want to put capital to work. Wednesday’s surge in risk appetite, especially in chip stocks, may fuel those spirits.

Investors usually baulk at volatility but appear to be embracing it right now. Look at Nvidia shares – down 7% on Tuesday then soaring 13% on Wednesday to bring its market cap back above USD 3 trillion.

That’s a one-day increase in market value of over USD 350 billion.

Wednesday’s action across all markets may have been tied to position adjustments on the last trading day of the month, but was nevertheless extraordinary.

The Nasdaq had its best day since February last year, geopolitical tensions helped fuel a 5% rise in WTI crude oil for its best day this year, and palladium was the pick of the bunch in a buoyant precious metals complex, rising 4%.

US bond yields fell to their lowest since February or March, depending on what part of the curve, while the dollar’s slump against a rampant yen dragged down its broader value against a range of G10 and emerging currencies.

The South Korean won posted its biggest rise this year, aided by strong Samsung earnings and a chip-fueled stock market rally, while the Thai baht hit a four-month high.

That momentum will likely extend into Asia on Thursday, although the BOJ’s hawkish stance and Fed’s more balanced posture – certainly relative to some recent soundings from key former Fed officials – may put the brakes on as the day progresses.

The yen and Nikkei could be most primed for reversal, having rallied strongly on Wednesday. The yen jumped 2% to break through 150.00 per dollar for the first time since March.

On the data front, the most market-sensitive releases will probably be manufacturing sector purchasing managers index reports from China and across Asia. China’s ‘official’ PMIs on Wednesday showed that manufacturing sector activity continued to shrink in July while service sector growth slowed.

Here are key developments that could provide more direction to markets on Thursday:

– China, Asia manufacturing PMIs (July)

– Indonesia inflation (July)

– South Korea trade (July)

(Reporting by Jamie McGeever; Editing by Bill Berkrot)