Japan’s Nikkei snaps 3-day winning run on Wall Street slump, stronger yen

TOKYO – Japan’s Nikkei share average snapped a three-day winning streak to close lower on Tuesday as a stronger yen and Wall Street’s weaker finish overnight weighed on sentiment.

The Nikkei fell 1% to close at 38,937.54, after rising 1.8% on Monday. The index has jumped 4% over the last three sessions.

“Japanese stocks retreated as overnight declines of Wall Street prompted investors to book profits from their three-day rally,” said Naoki Fujiwara, senior general manager at Shinkin Asset Management.

“Also, a stronger yen weighed on sentiment,” he said.

Wall Street’s three major indexes closed around 1% lower as traders tamped down bets for Federal Reserve’s easing on interest rates and concerns over the Middle East conflict’s impact on oil prices.

The yen was a tad stronger at 148.07 per dollar, having slumped to a seven-week low of 149.10 in the previous session.

A stronger yen tends to dampen exporters’ shares, as the unit decreases the value of overseas profits in yen terms when firms repatriate them to Japan.

The broader Topix dropped 1.47% to 2,699.15, with Toyota Motor falling 2.93% to drag the index the most. Shares of Sony Group fell 2.43%.

Technology startup investor SoftBank Group slumped nearly 2% to drag the Nikkei index the most. Uniqlo brand owner Fast Retailing slipped 0.61%.

All but three of the Tokyo Stock Exchange’s 33 industry sub-indexes fell, with the brokerage sector declining 3% to become the worst performer. The banking sector lost 2.6%.

Of more than 1,600 stocks listed on the TSE’s prime market, 84% fell, while 14% rose and 1% flat.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu, Varun H K, and Sherry Jacob-Phillips)

Hong Kong bourse can go harder on tycoons

HONG KONG – Hong Kong’s tycoons are acting like the masses are about to seize the means of production. The city’s stock exchange is proposing reforms that would make listed companies more accountable to independent shareholders. The Chamber of Hong Kong Listed Companies, a lobby group dominated by mogul-owned businesses, decried the proposals as “inappropriate” and tantamount to “micromanaging”. In truth, the bourse is treating them with kid gloves.

The new rules, if adopted, are pretty basic, as far as they go. Their goal is to bolster the role of independent non-executive directors (INEDs), who must make up at least a third of every listed company’s board and are charged with mediating between controlling and minority shareholders. Among the better ideas are making companies appoint a lead independent director to hear concerns from investors; limiting INED tenure to nine years; and preventing them from sitting on more than six boards at once.

Direct access to a lead independent director would be an especially welcome change. It would provide a reliable channel to push back on potentially sketchy deals when owner-executives refuse to engage — a common problem.

Yet the exchange has left loopholes that tycoons can step through with gusto. Independent directors who hit the nine-year limit can return to the board after two years. And companies that don’t appoint a lead INED can simply explain why without facing any serious consequences.

Such deference to captains of industry might have made sense back when these China-savvy magnates’ corporate empires were as politically powerful as they were profitable. But in recent years their sway over Hong Kong’s affairs has been substantially supplanted by Beijing. On top of that, an exodus of home buyers has helped torpedo the property market that made them so wealthy and powerful.

The nuclear option has always been for the tycoons to take their business elsewhere. But their hometown remains a nexus of free-flowing capital and cross-border financial know-how that’s difficult to replicate. And longtime ties to the mainland combined with worsening US-China tensions make a move to Wall Street daunting at best.

That gives Hong Kong Exchanges and Clearing a chance to press its advantage. The company run by Bonnie Chan could impose stricter limits on independent directorship tenure and the number of boards individuals sit on, as well as impose actual punishments for those that fail to appoint a lead independent director. It could also shift responsibility over who appoints INEDs from controlling stakeholders to minority shareholders, ensuring that some members of every board were, on paper at least, as independent as possible.

The tycoons might carp and moan about having to adopt better governance practices. But they’re not going anywhere.

CONTEXT NEWS

Investors and listed companies are awaiting the final version of changes to Hong Kong Exchanges and Clearing’s corporate governance regime after the close of a consultation period on August 16. HKEX is expected to publish final revised rules in the coming months.

Rules proposed by the exchange would impose a nine-year cap on the board tenure of independent non-executive directors (INEDs), limit INEDs from sitting on more than six boards at once, and mandate that companies appoint a lead INED to address shareholder concerns when corporate channels prove inadequate—or explain their failure to do so.

(Editing by Antony Currie and Aditya Srivastav)

Investors read Fed tea leaves, shrug off China stimulus

NEW YORK – Wall Street got back on track Tuesday, encouraged that the Fed seems confident enough in the US growth picture to ease up on the easing, but investors have been reticent ahead of the release of minutes from the September FOMC where officials took the most dovish possible policy turn to ensure the US jobs machine keeps humming.

By the time New York opened, markets weren’t looking too impressed with China’s economic jawboning after its return from Golden Week holiday. The yuan took a spill although it had brushed itself off a bit by the time Tuesday trading wrapped up.

Beijing said it was “fully confident” of achieving its full-year growth target but refrained from introducing stronger fiscal steps, disappointing investors who had banked on more support from policymakers to get the economy back on track.

While China shares initially rallied to two-year highs after the holiday they lost steam after the state planner did not provide details to sustain market optimism. Hong Kong shares slumped as investors also walked back some of the stimulus excitement.

London-based hedge fund giant Winton has lost more than 8% on its China strategy, since Sept. 20, wiping out all gains for this year, according to two investors and a performance record.

On Wednesday, the record from September’s Fed meeting will reveal the discussion about what looked at the time like a deteriorating labor market, until the eye-popping September payrolls report on Friday put those concerns to rest and unchained animal spirits for two of three subsequent US trading sessions.

Traders were 88% confident that November’s FOMC would bring a 25-basis point cut, hedged by a 12% probability that the Fed would hold rates steady. Fed funds futures still lean toward 50 bps of easing through year-end.

US markets were also still focused on the growing risk of a Middle East conflagration as Israel continued to step up its military incursion into Lebanon to combat Hezbollah, while continuing its war with Hamas in Gaza.

That did not stop the S&P 500 from rebounding 1%, while the Nasdaq advanced almost 1.5% as the risk-off impulse dissipated.

Forex trading in US time zones was subdued, with traders keeping powder dry for the release of September CPI on Thursday, the most important indicator of the week, even as Fed confidence that inflation is nearing their 2% target seems to have turned its policy discussion more squarely on employment.

The dollar eked out a 0.05% gain vs. the yen and showed a 0.67% rise against the yuan late Tuesday. The 10-year Treasury yield held above 4% for a second day.

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

– Taiwan CPI (Sept)

– Reserve Bank of India meeting

– Reserve Bank of New Zealand meeting

– Minutes of Federal Open Market Committee meeting (Sept)

US-based China ETFs get bumper influx, some investors optimistic tide is turning

Investors flooded US-based exchange-traded funds (ETFs) that target Chinese markets with USD 5.2 billion in new assets in the past week when mainland China’s financial markets were shut for a national holiday, and some asset managers are hopeful the optimism will be enduring.

The influx came after an initial package of stimulus measures from Beijing that included interest rate cuts and changes to bank liquidity requirements was announced in late September, which culminated on Sept. 30 in the largest one-day rally that Chinese stocks have seen since 2008.

Tuesday is the first working day in China after a run of holidays over the past week, and senior officials from China’s top economic planning agency are expected to give information on steps to implement policies to promote economic growth.

China’s measures have driven some optimism that the support will sustain and extend the dramatic turnaround in investor sentiment. The USD 5.2 billion inflow for the week ended Oct. 4 compares to an average weekly outflow of USD 83 million to date in 2024, and an average weekly outflow of USD 27 million last year, according to data from Morningstar.

“The market has been waiting for a credible commitment from China to get its economy going again,” said Michael Reynolds, vice president of investment strategy at Glenmede Trust, a Philadelphia-based boutique wealth management firm. “Now we need to see follow-through.”

Authorities also have announced plans to boost their investment in domestic ETFs. China’s Securities Regulatory Commission announced plans in late September to rapidly approve new ETFs that would track China’s “Star Market,” a segment of the Shanghai Stock Exchange dedicated to technology companies, and direct more capital to ETFs based in mainland China, according to the Financial Times.

“The China markets have been so oversold,” said Jonathan Krane, founder and CEO of KraneShares. His firm’s flagship ETF, KraneShares CSI China Internet KWEB.P, pulled in USD 1.39 billion in new assets last week alone, putting year-to-date flows back in the black, according to Morningstar.

The USD 8.3 billion KraneShares ETF is just one of more than two dozen China-focused funds that posted double-digit one-week returns, gaining between 10% and 28% and outperforming the more than 3,000 other ETFs traded in the US market last week, according to Paris-based data analytics firm TrackInsight.

Krane believes the surge in share prices is just the start, as investors have low exposure to Chinese stocks after February’s outsize nosedive by the benchmark CSI 300 Index, itself a reaction to growing fears about everything from a real estate slump, lackluster economic data, deflation and geopolitical events.

“This is just a very small percentage of the world getting back in or saying I need to rethink China,” Krane added. “This was just the early money.”

The vast majority of money in the past week has flowed into the biggest ETFs that offer broad exposure to a range of large-cap Chinese stocks. BlackRock’s BLK.N USD 7.99 billion iShares China Large-Cap ETF saw inflows of USD 2.7 billion last week, according to Morningstar.

“When you see moves that are so vast and violent, you see money flow into these (index-linked) products first,” said Michael Barrer, head of ETF capital markets for asset management firm Matthews Asia. Still, assets in the USD 44.8 million Matthews China Active ETF have soared in the wake of net inflows of USD 11.7 million last week.

For Chinese-focused ETFs to hang on to the new assets, Beijing will need to announce a package of detailed and high-impact reforms, said Jason Hsu, founder and CEO of Rayliant Global Advisors, an asset management firm.

“The next bazooka that Beijing fires has to come in the shape of formalizing new stimulus proposals and adding a timeline,” he said.

Roundhill Investments CEO Dave Mazza said he saw the tide turning in investor sentiment.

Roundhill launched Roundhill China Dragons ETF last week, focusing on nine of what Roundhill deems the largest, most innovative Chinese technology firms. It attracted net inflows of USD 35 million in its first two trading days, Mazza said.

“We figured that at some point soon, the tide would turn and China once again would be investable,” Mazza said.

(Reporting by Suzanne McGee; editing by Megan Davies and Leslie Adler)

US yields hit 4% for 1st time in 2 months; yield curve briefly inverts

NEW YORK – The benchmark US Treasury 10-year yield topped 4% for the first time in more than two months on Monday, while a widely watched part of the yield curve briefly inverted, as markets reduced bets of another super-sized rate cut following Friday’s strong US jobs report.

Investors were also prepping for USD 119 billion in auctions of the US three-year and 10-year notes, as well as 30-year bonds. That has led to some concession, which means market participants have been selling Treasuries, pushing their prices lower and yields higher, and buying them back later after the auction.

In afternoon trading, the 10-year yield rose 3.9 basis points (bps) from late Friday to 4.019%, advancing for a fourth straight session after hitting its highest level since late July of 4.033%. It rose 13 bps on Friday, its biggest one-day rise since June 30, after news the US economy added 254,000 jobs in September, above the expectations of economists polled by Reuters. The unemployment rate surprisingly fell to 4.1% from 4.2%.

The US two-year yield, which is more sensitive to changes in monetary policy expectations, reached its highest since Aug. 19 at 4.0270% and was up 7.4 bps at 4.006%. It rose almost 22 bps on Friday, its biggest daily rise since April.

“At this point, we are still in a cutting cycle. From the market’s perspective, I still believe the Fed is going to deliver a couple more eases this year,” said Angelo Manolatos, macro strategist, at Wells Fargo. “What really ends up being the question is: how much are they cutting in 2025? There has been a rethink of the 25-bp easing from the market.”

The US rate futures market has priced in an 88% chance of a 25-bp cut next month, and 12% odds that the Fed will pause at according to LSE calculations. The market overall has also factored in 50-bp of easing for the remainder of the year.

Meanwhile, the bigger increase in yields on the two-year compared to that of the 10-year has briefly inverted the curve, flattening overall from a steepening scenario. The yield spread between the two-year and the 10-year hit minus 1.4 bps. It was last at positive 2.3 bps.

The flattening of the curve suggested that the market has reduced expectations of an aggressive rate-cutting cycle.

The Fed last month lowered the fed funds target rate to 4.75%-5.0% from 5.25%-5.5%, where it had been since the Fed stopped hiking rates in July 2023.

Gennadiy Goldberg, head of US rates strategy, at TD Securities in New York, said the selloff in Treasuries that brought key yields just above 4% could incentivize investors to add duration, once the market stabilized. Goldberg added that this week’s auctions could draw decent interest now that yields have backed up.

In other maturities, the 30-year bond yield rose 3.7 bps to 4.304%.

The main US economic release of the week comes on Thursday with the release of September’s Consumer Price Index. Inflation worries have given way to the strength of the labor market as a driver of Fed policy thinking.

“Inflation is back in the spotlight as the strength in the labor market and the economy are sparking some angst that the FOMC (Federal Open Market Committee) might have subtly declared victory too soon,” wrote Action Economics in a blog. “A benign report is generally expected for September, so hotter data would weigh further on the markets.”

(Reporting by Alden Bentley and Gertrude Chavez-Dreyfuss in New York; Additonal reporting by Samuel Indyk and Harry Robertson in London; Editing by Alun John, Dhara Ranasinghe, and Barbara Lewis)

China markets set to reopen with a roar after week-long break

SINGAPORE – Chinese markets were poised for gains and volatility on Tuesday as the return from a week-long holiday was in global focus given the blistering pre-break rally on bets Beijing’s stimulus would improve the economy.

Traders said the market open at 9.30 a.m. local time (0130 GMT) will be a barometer of sentiment – which had swung from despair to euphoria in a matter of days – and the coming sessions may test the stunning momentum.

Singapore-traded FTSE China A50 futures have gained some 14% since China’s cash markets closed on Sept. 30 and Hong Kong’s Hang Seng China Enterprises index was up 11% over the same period, pointing to a catch-up rally for the mainland.

US A-share ETFs rose sharply on Monday, though the Golden Dragon index of US-listed Chinese shares was bumpy and closed the session flat. Hang Seng futures HSIc1 were steady, following Monday’s gains in Hong Kong.

“All eyes (are) on China’s reopening,” said National Australia Bank’s senior currency strategist, Rodrigo Catril in a note to clients.

“Now the market is seemingly on a wait-and-see mode, hoping for some concrete stimulus signs that can justify the recent move up in equity prices.”

A press conference from the National Development and Reform Commission called for 0200 GMT is in focus for further details of the promises and hints that drove the market frenzy.

Before the break, China announced the most aggressive stimulus measures since the pandemic and the CSI300 gained 25% over five sessions. Turnover soared as heavy buying strained brokers and trading systems, and last Monday the CSI300 and the Shanghai Composite both notched their largest gains since 2008.

Authorities have cut rates and hinted at fiscal support to shore up an economy that, by Chinese standards, is ailing.

Before the Golden Week holiday break, hedge fund manager David Tepper said on CNBC the moves were encouraging enough that he would buy “everything” on China.

But gains have been so large that others now urge caution.

“China’s weighting in the MSCI EM Index rose from 24% in Aug to 30% now, and its continued outperformance may drive a self-reinforcing ‘pain-trade’ before the year-end,” Bank of America analysts said in a note on Monday.

However, they said, the “‘buy everything’ stage will be over soon,” with market momentum, fiscal support, earnings, the US election, and further policy settings all part of the outlook.

“Consumer, property (and) broker stocks could be profit-taking candidates … big cap internet and high-yield SOEs are our preferred exposure,” they said.

In currency markets, China’s offshore yuan eased against a rising dollar during the break, but rebounded on Monday to 7.0724 per dollar. Onshore, the yuan had closed at 7.0175 per dollar before the holiday.

(Reporting by Tom Westbrook; Editing by Jamie Freed)

Gold retreats on strong dollar, fading hopes of big US rate cut

Gold prices eased on Monday as the US dollar held strong and recent employment data prompted investors to scale back expectations of a big rate cut from the Federal Reserve in November.

Spot gold fell 0.2% to USD 2,648.21 per ounce by 1:51 p.m. ET (1751 GMT), off a record peak of USD 2,685.42 hit on Sept. 26.

US gold futures GCcv1 settled 0.1% lower at USD 2,666.00.

The US dollar hovered at its highest level in seven weeks, making greenback-priced bullion more expensive for other currency holders.

“The dollar strength is the short-term headwind at this point that’s preventing new all-time highs for gold,” said Peter A. Grant, vice president and senior metals strategist at Zaner Metals.

“I still see short-term potential to USD 2,700 and the longer-term objective at USD 3,000 remains valid due to safe-haven demand from geopolitical tensions and political uncertainty as we get closer to the US election.”

Bullion is considered a hedge against geopolitical and economic uncertainties and tends to thrive in a low interest rate environment.

Traders now see an 86% probability that the Fed will cut rates by only a quarter of a percentage point next month after a US employment report last week reinforced the belief the economy is unlikely to need the Fed to deliver large interest rate cuts for the rest of this year.

The market will now scan through minutes of the Fed’s last policy meeting, and the US Consumer Price Index (CPI) and Producer Price Index (PPI) data this week.

Elsewhere, China’s central bank held back on buying gold for its reserves for a fifth straight month in September.

With gold prices near record highs, China may hold back on further accumulation in the short-term but the broader trend to load up on the metal could continue, IG market strategist Yeap Jun Rong said.

Spot silver fell 1.2% to USD 31.78 and platinum lost 1.2% to USD 975.72, while palladium rose 1.4% to USD 1,026.47.

(Reporting by Anushree Mukherjee and Ashitha Shivaprasad in Bengaluru; Editing by Shailesh Kuber)

Oil settles 3% higher as Middle East war risk makes investors cautious

NEW YORK – Oil prices settled more than 3% higher on Monday, with Brent surpassing USD 80 per barrel for the first time since August as the increased risk of a region-wide Middle East war jolted investors out of record bearish positions amassed last month.

Brent crude futures rose by USD 2.88, or 3.7%, to settle at USD 80.93 per barrel. U.S. West Texas Intermediate futures advanced by USD 2.76, or 3.7%, to USD 77.14 per barrel.

Last week, Brent rose more than 8% and WTI advanced by more than 9% week-on-week, the most in more than a year, after Iran’s Oct. 1 missile barrage against Israel raised concerns that the response from Israel would aim at Tehran’s oil infrastructure.

If that happens, oil prices could rise by another USD 3 to USD 5 per barrel, said Andrew Lipow, president of Lipow Oil Associates.

Rockets fired by Iran-backed Hezbollah hit Israel’s third-largest city, Haifa, early on Monday. Israel, meanwhile, looked poised to expand ground incursions into southern Lebanon on the first anniversary of the Gaza war that has spread conflict across the Middle East.

“There is growing concern that (the) conflict may continue to escalate – not only putting Iran’s 3.4 mmbopd (million barrels of oil per day) of production at risk – but creating further disruptions to regional supply,” analysts at Tudor, Pickering, Holt & Co wrote on Monday.

Monday’s gains were likely driven by money managers closing bearish bets on the rising risk of disruption to Middle Eastern oil supplies, UBS analyst Giovanni Staunovo said.

Hedge funds and money managers had amassed record bearish bets in oil futures through mid-September on a reduced outlook for demand, primarily in China, the biggest importer of crude oil.

“There’s a lot of short-covering in the market that started last week and is still continuing,” said John Kilduff, partner at Again Capital in New York. “It’s a buy now, ask questions later kind of market,” he said.

Still, he warned that the fear-driven rally leaves oil prices open to considerable downside if Israel decides not to attack Iranian oil infrastructure.

That would send oil prices down by between USD 5 and USD 7 per barrel, Kilduff and Lipow estimated separately.

“Up until a week ago, I had thought we would be testing low USD 60s in oil,” said Brent Belote, founder of commodities-focused hedge fund Cayler Capital.

Demand remains weak, and the Organization of Petroleum Exporting Countries has enough spare supply capacity to offset any disruptions to Iranian exports, Belote added.

OPEC and allies, including Russia, known collectively as OPEC+, are due to start raising production in December after cutting in recent years to support prices because of weak global demand.

However, Brent crude prices will likely have to be closer to USD 90 or above for OPEC+ to increase supplies, Lipow said.

(Reporting by Shariq Khan in New York, Paul Carsten and Arunima Kumar in London, and Gabrielle Ng and Emily Chow; Editing by David Goodman, Kirsten Donovan, Barbara Lewis, and Sonali Paul)

US money market funds draw sharp inflows in the week to Oct. 2

US money market funds saw massive inflows in the week to Oct. 2 as investors sought safer assets on caution ahead of a key payrolls report amid heightened geopolitical concerns in the Middle East.

They acquired US money market funds of a net USD 41.32 billion during the week following about USD 113.11 billion worth of net purchases in the previous week, according to LSEG Lipper data.

A stronger-than-expected September non-farm payrolls report on Friday, however, eased worries about the health of US labor market and pared back market bets of a larger Fed rate-cut in November.

US equity funds also gained a significant USD 30.8 billion worth of inflows during the week, the largest amount since at least December 2020.

Large-cap equity funds garnered a hefty USD 35.49 billion, the highest inflow since at least January 2019. US investors, however, divested mid-cap, multi-cap, and small-cap funds of a net USD 1.94 billion, USD 1.72 billion and USD 1.31 billion, respectively.

Among sectoral funds, real-estate, utilities, and industrial sectors drew USD 461 million, USD 356 million and USD 321 million worth of inflows, respectively, while healthcare and financials suffered USD 919 million and USD 537 million worth of net selling.

Demand for US bond funds, meanwhile, eased to the lowest in four weeks as they obtained about USD 2.8 billion in net purchases.

US short-to-intermediate government and treasury funds had 5.03 billion worth of net sales following three weekly inflows in a row.

Investors, meanwhile, purchased short-to-intermediate investment-grade, municipal debt, and general domestic taxable fixed income funds of USD 3.6 billion, USD 1.88 billion, and USD 852 million, respectively.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; editing by David Evans)

Gold falls as stronger US jobs data shrinks hopes of big Fed rate cut

Gold prices slipped on Friday after a stronger-than-expected US jobs report poured cold water on expectations for an aggressive rate cut from the Federal Reserve next month, boosting the dollar.

Spot gold was down 0.2% at USD 2,649.69 per ounce by 01:57 p.m. EDT (1757 GMT), after touching a record high of USD 2,685.42 last week. US gold futures settled 0.4% lower at USD 2,667.80.

US job growth accelerated in September and the unemployment rate slipped to 4.1%, further easing pressure on the Fed to deliver another 50 basis point rate cut at its Nov. 6-7 policy meeting.

“Gold stumbles as a strong payrolls report seems likely to lock in 25 bps in November,” said Tai Wong, a New York-based independent metals trader. “Revisions to last month were higher as well, which we haven’t seen in many months, while the unemployment rate ticked lower even as participation stayed flat.”

The dollar index jumped to a seven-week high after the data, making bullion more expensive for overseas buyers.

Traders scaled back expectations for a 50 bp rate cut in November to almost 0% from 28% before the payrolls data.

“We’re heading into a weekend where geopolitical tensions are at a boil, and that is really limiting the scope of accounts that are willing to sell gold,” said Daniel Ghali, commodity strategist at TD Securities.

Israeli military strikes across Gaza Strip killed at least 29 Palestinians, and sirens blared in Israel in response to renewed rocket fire from militants in the Palestinian enclave.

Gold, used as a safe-haven investment during times of political turmoil, appreciates in a low interest rate environment.

“If geopolitics play a role over the weekend, gold futures could easily accelerate back up to USD 2,700 and threaten new all-time highs,” said Phillip Streible, chief market strategist at Blue Line Futures.

Spot silver rose 0.5% to USD 32.21, on course for a weekly gain. Platinum fell 0.1% to USD 989.33 and palladium was steady at USD 1,000.

(Reporting by Anjana Anil in Bengaluru; Editing by Shreya Biswas, Kirsten Donvan, and Richard Chang)

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