Asia stocks wobble as tech drags, yen gains in volatile trade

British Pound

Reuters: The pound rose on Wednesday after falling to a five-week low the previous day, and climbed sharply against the yen after a Bank of Japan official played down the chances near-term rate hikes. Sterling was last up 0.27% at $1.2726 after falling to $1.2674 on Tuesday, the lowest since the start of July. The pound has fallen from a one-year high above $1.30 in July, pulled down by expectations that the Bank of England would cut rates, which it did in early August, and a selling of currencies deemed riskier investments during the recent turbulence.

Sterling fell on Monday and Tuesday even as the dollar dropped following weak economic data, as investors moved out of currencies deemed to be more closely linked to the health of the global economy. The focus in currency markets on Wednesday was on the Japanese yen, which dived after an influential Bank of Japan official said a further rate hike was not under consideration while markets were so volatile. BOJ Deputy Governor Shinichi Uchida's comments helped soothe nerves across global markets, where a rapid rally in the yen had caused investors to unwind other investments and was a key factor in sending stocks tumbling.

Sterling was last up 1.88% against the yen at 186.92 yen, although it remained 3% lower for the month after the Japanese currency's powerful rally. "Uchida's dovish remarks following the Bank of Japan rate hike on July 31 provided relief to markets, resulting in a rebound in Japanese equities and a depreciation of the yen against the dollar," said Charu Chanana, Saxo's head of FX strategy. The pound was up against the euro, which rallied this week as investors sold the dollar. The euro was last 0.44% lower at 85.78 pence, after hitting a three-month high of 86.2 pence on Monday.

US Dollar

Reuters: The yen was choppy on Thursday after a sharp drop in the previous session in a volatile week that has left sentiment fragile as investors weigh the unwinding of popular carry trades and ponder the rate path Japan's central bank is likely to take. The yen was last slightly stronger at 146.09 per dollar, having dropped 1.6% on Wednesday after the Bank of Japan's Deputy Governor Shinichi Uchida played down the chance of a near-term hike in interest rates. The Japanese currency started the week by scaling a seven-month high of 141.675 per dollar, a far cry from the 38-year lows it was rooted at in early July as soft U.S. jobs data last week stoked recession worries and roiled investors.

A surprise hike from the BOJ last week also led investors to bail out of carry trades, in which traders borrow the yen at low rates to invest in dollar-priced assets for higher returns, helping to lift the yen. A summary of opinions voiced at the BOJ's July policy meeting showed on Thursday that some board members called for the need to keep raising interest rates with one saying they should eventually be increased to at least around 1%. The contrasting opinions from the summary and Uchida on whether the BOJ will continue to raise rates or pause as a result of market volatility, underscores the delicate task facing the central bank and will likely keep investors skittish.

"While the BOJ may have paused for now, it is likely to continue its journey towards normalizing policy in the coming months," said Vasu Menon, managing director of investment strategy at OCBC. "It may be too early to pop the champagne as markets remain vulnerable to the risk of negative news flows and other global uncertainties." ANZ Bank's chief economist Sharon Zollner and strategist David Croy pointed out that even if the Federal Reserve cuts rates by as much as markets are pricing in and the BOJ hikes again, Japanese rates will still be well below their U.S. equivalents.

"So, the carry trade isn't likely to end any time soon, but we may see more dollar/yen movement as investors trim risk positions," they said in a note. The Swiss franc, another currency that was used to fund carry trades, was slightly stronger at 0.8606 per dollar, after an over 1% drop in the previous session. The sharp moves in the yen has pushed the dollar index , which measures the U.S. currency against six rivals including the yen, to 103.08, near the seven-month low of 102.15 it touched on Monday.

The euro was steady at $1.09285, while sterling last fetched $1.26865, hovering close to the one-month low it touched on Tuesday. Traders expect the Fed to cut rates by 50 basis points at its next meeting in September as the economy slows, but they are also pricing in a 26.5% chance of a smaller 25 bps reduction, according to the CME Group's FedWatch Tool. On Monday, they had at one point fully priced in a 50-bps cut and had even started pricing in the possibility of an emergency rate reduction before the September meeting, though those odds have eased since then as markets stabilise somewhat.

Investor focus will now be on the U.S. consumer price inflation report for July due next week as well as comments by Fed Chair Jerome Powell at the central bank's Jackson Hole Economic Policy Symposium on Aug. 22-24. "Investors need to brace for a bumpy ride," said OCBC's Menon, noting that there is still another six weeks before the next Fed meeting and "there is a lot of economic data on tap between now and then which could change the odds". The Australian dollar was 0.14% higher at $0.65275, while the New Zealand dollar was steady at $0.59985.

South African Rand

Reuters: The South African rand gained on Wednesday as a rebound in global stock markets boosted risk sentiment and investors awaited U.S. labour market data later this week for hints on the future interest rate path of the world's biggest economy. At 1416 GMT, the rand traded at 18.35 against the dollar, about 0.8% stronger than its previous close. The South African currency had gained more than 1% against the greenback earlier in the day. "The South African rand has strengthened this morning, buoyed by improved global market sentiment," said Zain Vawda, market analyst at MarketPulse by OANDA.

The release on Friday of a weaker than expected U.S. July payrolls report stoked recession worries and led to a plunge in global equities on Monday, with traders fleeing to safe-haven assets. But Federal Reserve policymakers pushed back on Monday against the notion that the economy is close to recession and indicated the U.S. central bank would need to cut rates to avoid such an outcome. An influential Bank of Japan official also played down the chances of a near-term rate hike in Japan on Wednesday, soothing investors' concerns that a further jump in the value of the yen could again rock global markets.

"Tomorrow's U.S. jobless claims number will now be sharply in focus for confirmation of the weakening U.S. labour market," said Andre Cilliers, currency strategist at TreasuryONE. Like other risk-sensitive currencies, the rand often takes its cue from global drivers such as U.S. economic data and global monetary policy in addition to local factors. On the domestic front, South Africa's net foreign reserves rose to $59.165 billion at the end of July from $58.437 billion in June, central bank data showed on Wednesday. On the Johannesburg Stock Exchange, the blue-chip Top-40 index last traded up about 1.2%. South Africa's benchmark 2030 government bond was unchanged, with the yield at 9.375%.

Global Markets

Reuters: Tech shares led a selloff in stock markets around Asia, while the yen and U.S. bonds rebounded, as global investors struggled to find their footing in a wild week for markets. Japan's Nikkei share average was last down 1%, having earlier slumped as much as 2.5%, with chip-sector shares the biggest drag on the index. That left the Nikkei down more than 3% for the week, following Monday's 12.4% plunge, despite the ensuing two-day rebound. Tech shares led a selloff in stock markets around Asia, while the yen and U.S. bonds rebounded, as global investors struggled to find their footing in a wild week for markets.

Japan's Nikkei share average was last down 1%, having earlier slumped as much as 2.5%, with chip-sector shares the biggest drag on the index. That left the Nikkei down more than 3% for the week, following Monday's 12.4% plunge, despite the ensuing two-day rebound. Wall Street futures were weak, with S&P 500 futures down 0.24% and Nasdaq futures off 0.14% following respective declines for the cash indexes of about 0.8% and 1.1% on Wednesday. Pan-European STOXX 50 futures sagged 1.2%.

The yen generally benefits when market sentiment sours, and appreciated as much as 0.86% to 145.43 per dollar before last trading about 0.3% stronger at 146.17. The Swiss franc, another traditional haven, added 0.3% to 0/8592 per dollar. The dollar-yen pair also tends to be sensitive to moves in long-term U.S. Treasury yields, which retraced about half of their overnight jump to 3.977% and last stood at 3.92% in Asian hours. The dollar index, which measures the currency against the yen, franc, euro and three other major peers, was down slightly at 103.09, while the euro gained a touch to $1.0925.

Currencies, and the yen in particular, have been upended by a shift last week toward bets for steady interest rate increases by the Bank of Japan and aggressive cuts by the Federal Reserve, which helped send the dollar as low as 141.675 yen on Monday for the first time since the start of this year. Weekly U.S. jobless claims data later in the day could prove market moving following soft monthly payrolls figures on Friday that exacerbated fears of a U.S. economic downturn.

Meanwhile, crude oil continued its rise following data the previous day that showed a bigger-than-expected draw in U.S. crude stockpiles. Brent crude futures rose 0.3% to $78.56 a barrel, following Wednesday's 2.4% jump. U.S. West Texas Intermediate crude gained 0.4% to $75.52, building on a 2.8% rally from overnight.

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