Stocks Rise With Bond Yields on Japan, Gold Jumps: Markets Wrap

(Bloomberg) — Asian stocks rose to an all-time high, led by Japanese equities, after a pro-stimulus lawmaker emerged as the country’s next leader. Bond yields rose on concern over higher spending, pushing investors toward alternative assets such as gold and Bitcoin, both of which hit records.

MSCI’s regional stock gauge advanced for a sixth consecutive day, while the Nikkei 225 index jumped 4.8% to an all-time high as Sanae Takaichi was in line to become the country’s next prime minister. The yen slid 1.7% to 150 per dollar, while falling to a record low against the euro.

Longer-maturity Japanese bonds slid the most in months, with the 40-year yield surging 14 basis points, on concern a government led by Takaichi may sell more debt to finance tax cuts and stimulate the economy. US Treasuries also fell along with bond futures for Australia.

Gold rose above $3,900 an ounce to yet another record, extending a rally that’s been a feature of commodity markets all year. Bitcoin also set another all-time high over the weekend. Oil advanced after OPEC+ agreed Sunday to revive just 137,000 barrels a day of halted supply — a slower pace than earlier this year. Equity-index futures for the US also rose.

“Investors are actively balancing the potential upside of stimulus against bond market risk,” said Dilin Wu, a strategist at Pepperstone Group. “Investors will need to watch Japan’s fiscal-monetary interplay, bond market movements, and yen volatility closely — these will be the main drivers of cross-asset positioning in the coming weeks.”

Stocks have been surging, looking past a US government shutdown and the threat of firing federal workers, as traders bet investments on artificial intelligence will eventually pay off for tech companies. Investors have speculated that the shutdown, which kicked in on Wednesday, will drive investors to haven assets in what market participants have begun to call the “debasement trade.”

A burst of new partnerships and ChatGPT-maker OpenAI’s valuation reaching $500 billion had spurred shares. Equities have climbed to successive record highs this year, with AI optimism adding to bullish momentum from prospects for monetary policy easing and resilient earnings.

While the US government shutdown meant the crucial nonfarm payrolls data didn’t get published, swap traders are confident the Federal Reserve will execute another quarter-point interest-rate cut in October.

“US conditions drive all these markets together,” said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong. “The Fed is cutting in an economy not in a recession, and upward inflation risk. That is bullish for US equity, and gold, and has implications for Asia.”

Back in Japan, Takaichi is set to become Japan’s first female prime minister after winning the Liberal Democratic Party leadership contest during the weekend.

What Bloomberg strategists say…

Japanese bond traders are piling into the short end in early trading to underscore the steepening shifts anticipated in response to Sanae Takaichi’s victory in the ruling party leadership race. It seems bond traders are anticipating the BOJ to ease off on hiking rates and the potential for the new leader to boost bond sales.

— Garfield Reynolds, MLIV Asia Team Leader. Click here for the full analysis.

Defense equipment makers Kawasaki Heavy Industries Ltd., Japan Steel Works Ltd. and IHI Corp. all soared at least 10% at one point on Monday as Japanese defense and tech shares soared on speculation they’ll benefit from more government spending.

Meanwhile, French bond futures opened lower in Asia trading on concern that the nation’s government may collapse after President Emmanuel Macron appointed a broadly unchanged cabinet.

Corporate News:

Nvidia Corp.’s major server production partner Hon Hai Precision Industry Co. reported 11% growth in quarterly sales, signaling healthy demand for AI infrastructure. Tata Capital Ltd.’s $1.7 billion initial public offering attracted anchor investors including funds managed by Morgan Stanley, Goldman Sachs Group Inc. and Nomura Holdings Inc. as well as domestic mutual funds and insurers. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.3% as of 12:53 p.m. Tokyo time Japan’s Topix rose 3.3% Australia’s S&P/ASX 200 was little changed Hong Kong’s Hang Seng fell 0.6% Euro Stoxx 50 futures were little changed Currencies

The Bloomberg Dollar Spot Index rose 0.3% The euro fell 0.2% to $1.1724 The Japanese yen fell 1.8% to 150.07 per dollar The offshore yuan fell 0.1% to 7.1444 per dollar Cryptocurrencies

Bitcoin rose 0.9% to $123,892.84 Ether rose 0.7% to $4,532.64 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.14% Japan’s 10-year yield was unchanged at 1.660% Australia’s 10-year yield was little changed at 4.33% Commodities

West Texas Intermediate crude rose 1.5% to $61.78 a barrel Spot gold rose 1.1% to $3,928.63 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Hideyuki Sano.

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