The Japanese yen jumped to its highest value versus the U.S. dollar since the market collapse on August 12. This increase mirrors a broad based recovery in investor confidence as Japanese markets reopened following a holiday. At the same time, 10-year Japanese Government Bond (JGB) yields rose, as market expectations around monetary policy continued to adjust. The euro came under selling pressure, and it fell to a three-day low. Among other things, analysts are tracking changes in global currency values and labor markets.
After a day of closure following a national holiday, Japan’s stock markets reacted positively. Investor optimism helped drive the Nikkei index to an all-time high, jumping by over 2% on the day. This rally reflects the overall bullish sentiment that has been ruling Japanese equities despite recent inconsistencies with key economic indicators.
Second, the Bank of Japan (BOJ) is being timid. Their strong signaling that they’re in no great hurry to pursue additional interest rate increases has added a key ingredient – monetary restraint – that has stoked the yen’s gains. The BOJ remains very much in the mode of assessing economic conditions. As of August, their latest measure, that picture is looking very poor, crashing all the way down to -68.6 from -59.5 in July. This drop could be more indicative of worries about long-term economic security, just masking that fact with short-term gains on Wall Street.
In the European forex market, the euro was sold down to a three-day low, trading below $1.16. This is a notable drop from previous peaks and indicates a potentially changing tide in sentiment surrounding the euro. Overall, the euro has risen by nearly 3 ⅓ cents since that low of $1.3140 on August 1. The opposite is true as this rally proves its resilience in spite of current pressures. Currently, it is maintaining above $1.1605 but has seen nearby appropriate closing resistance around $1.1630.
The Canadian dollar (CAD) was one of the best-performing currency within the G10 developed. Though, it did suffer a small loss of ~0.15%. It made a four-day high just below CAD1.3800, reflecting its strength even as global currency dynamics have turned more volatile and uncertain. This performance reflects broader trends in commodity prices and economic fundamentals influencing the Canadian economy.
In July, claims for unemployment compensation in the United States fell by 6,200. This drop is a positive sign of labor market conditions as the economy continues to recover from the impacts of the pandemic. This continued dip in claims should give a boost to U.S. consumer and business confidence as well.
The Stoxx 600 index in Europe is recovering after yesterday’s small losses. This ongoing resilience in European equities is a sign that investors are allocating a discerning eye to macroeconomic data and corporate earnings releases. This economic recovery is on track with what we’re seeing in other global markets as they readjust to new economic realities.
Speculations about changes to monetary policy are making the air pretty hot over in New Zealand. Markets are fun and all, but they still suggest close to a 90% probability that the Reserve Bank of New Zealand will lower the cash target from 3.25%. This possible turn of events only heightens worries about inflation and slowing economic activity on the banks of the placid Potomac.
In the UK, labor market indicators suggest stabilization, providing some reassurance to economists and policymakers concerned about potential downturns. That notable stabilization comes despite a lack of overall global economic confidence and provides at least a platform for potential long-term rebound.