And just like that, the great carry trade freak out - which started exactly one week ago when the BOJ hiked rates by a huge 0.15% - is over, because as we had expected, the BOJ got cold feet and capitulated on its rate hiking cycle on Wednesday morning when BOJ deputy governor Shinichi Uchida sent dovish U-turn signal in the wake of historic financial market volatility by pledging to refrain from hiking interest rates when the markets are unstable. In kneejerk reaction to his comments - which were the first public remarks by a BOJ board member since the bank raised rates on July 31 - the yen, which had strengthened by a record amount in the past week as the carry trade careened sending deflationary shockwaves around the globe, weakened by more than 2%, bond yields rose and stocks soared. As of 7:30am ET, S&P 500 jumped by 1.2% with both Tech and small-caps outperforming as the BOJ capitulation relief rally continues;' Nasdaq 100 futures gained more than 1.5% after the underlying indexes rebounded more than 1% on Tuesday following a wave of dip buying. The Stoxx Europe 600 index climbed more than 1%, with mixed earnings reports from some of the region’s biggest companies doing little to dampen the risk-on mood. Japanese stocks led a broad rally in Asia. Bond yields are higher by 4-5bps, and the USD is higher, looking to erase its weekly loss. Commodities have also caught a bid as the carry trade is reestablished with WTI, base metals, and Ags all seeing strength. Mtge Applications and 10Y bond auction are the major macro data pts. Is the panic unwind finished? Are detailed thoughts are below.
In the premarket, Mag7 are all higher and semis are shrugging off SMCI (-12%) catastrophic margin collapse as NVDA, AVGO, AMD, and QCOM lead the group higher each up 1%+. Super Micro Computer crashed 14% reversing a 20% earlier spike, as the computer hardware maker’s disappointing gross margins overshadowed an otherwise strong 2025 net sales forecast. Airbnb also tumbled 14% after the company gave a disappointing outlook for a third consecutive quarter and warned of slowing demand from US vacationers. Here are some other notable premarket movers:
Volatility is waning as the S&P 500 recovers from its worst one-day drop since September 2022. The VIX plunged another 17% on Wednesday following its biggest plunge since 2010. The biggest event overnight was Uchida's surprising U-turn, and capitulation, which came less than a week after the BOJ's historic and unexpected rate hike which unleashed a carry trade unwind and pushed the VIX as high as 65, its biggest increase since the covid crash.
“I wouldn’t underestimate importance of what the Bank of Japan has been saying overnight,” Jennison Associates Managing Director Raj Shant said on Bloomberg TV. “I think that’s really helpful. This carry trade has been many, many years in the making, and probably indirectly affects a lot of asset classes around the world.”
Still, the recent market turmoil was a “stark reminder of how quickly things can change,” said Justin Onuekwusi, chief investment officer at St James Place. “While overall corporate balance sheets are healthy and recession risks are low, we are starting to see earnings tail off a bit and companies’ guidance is outlining a more uncertain future.”
European stocks follow US futures and Asian counterparts higher after the BOJ capitulation. The Stoxx 600 adds 1.1% with auto, construction and bank names leading gains. Novo Nordisk A/S shares dropped as much as 5% after the Danish drugmaker cut its profit forecast for the year. German lender Commerzbank AG, sportswear maker Puma SE and skin-care products maker Beiersdorf AG also slumped after earnings misses. On the other end, shares in Continental AG rose after the German manufacturer posted improving returns at its struggling car-parts unit, which it may spin off in its biggest-ever restructuring. Dutch lender ABN Amro Bank NV gained after the Dutch lender raised its outlook for lending income, showing how Europe’s high interest rates continue to provide tailwind for the banking industry. The banks sub-index outperformed the benchmark. Here are the biggest European movers:
Earlier in the session, Asian equities advanced for a second session following Monday’s global rout, after the Bank of Japan said it won’t raise interest rates if financial markets are unstable. The MSCI Asia Pacific Index climbed as much as 2.1%. Japan’s Topix index pared earlier gains to close 2.3% higher as Bank of Japan Deputy Governor Shinichi Uchida noted the recent volatility in the nation’s markets and said its rate path will shift if there’s an impact on the policy outlook. Benchmarks in South Korea and Taiwan also climbed, with the Taiex index logging its biggest single-day rally since May 2021. Technology stocks led gains across the region as concerns about further unwinding of the yen carry trade eased, with the Japanese currency weakening more than 2% against the dollar. Still, some market watchers remained cautious.
In FX, the Bloomberg index rose for a second day while the yen is around 2% weaker against the dollar with the cross topping just short of 148.00. The weaker yen boosted higher-yielding currencies. The Mexican peso, a carry trade target that tumbled after the BOJ rate hike, rose more than 1% against the dollar Wednesday. The Swiss franc also underperforms with a 1.1% fall. The kiwi outperforms, rising 1% after the unemployment rate rose less than expected.
In rates, treasuries are cheaper across the curve following the deeper selloff in core European rates after Bank of Japan Deputy Governor Shinichi Uchida pledged to refrain from hiking interest rates while markets are unstable. Treasury yields cheaper by 4bp-5bp with curve spreads little changed; 10-year around 3.94% with bunds underperforming by roughly 4.5bp in the sector. Supply is also a factor for Wednesday’s session, with 10-year note auction at 1pm New York time: the auction cycle continues with $42b 10-year new issue, following good result for Tuesday’s $58b 3-year note sale; it ends Thursday with $25b 30-year bond sale. The WI 10-year yield at ~3.93% is roughly 35bp richer than last month’s, which stopped through by 1bp.
In commodities, oil prices advance, with WTI rising 0.8% to trade near $73.80 a barrel. Spot gold is steady around $2,393/oz. Bitcoin adds 1.7%.
Looking at today's calendar, US economic data slate includes June consumer credit at 3pm. Scheduled Fed speakers include Collins at 12pm.
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of newsquawk
APAC stocks continued their recent rebound but with some of the gains capped as markets digested mixed Chinese trade data. ASX 200 was positive albeit with the upside limited as participants reflected on the key data from Australia's largest trading partner. Nikkei 225 saw two-way price action in which initially suffered losses but then staged a gradual recovery and was further boosted following comments from BoJ Deputy Governor Uchida who said they won't hike rates when markets are unstable. Hang Seng and Shanghai Comp. conformed to the upbeat mood although the advances in the mainland are limited after the PBoC refrained from injecting funds and the latest Chinese trade data printed mixed.
Top Asian News
European bourses are firmer intraday, Euro Stoxx 50 +1.7%, with the Stoxx 50 outperforming the Stoxx 600 +1.1% as the latter is weighed on by post-earnings downside in heavyweight Novo Nordisk -3.0%. Given this, Healthcare lags after Novo missed on several key metrics incl. Wegovy sales and downgraded some components of its FY guidance. Banks outperform as yields rise and after strong numbers from ABN AMRO. Breakdown has the DAX 40 +1.5% supported by Continental, which is lifting the broader Auto sector; Commerzbank bucks the banking trend after missing on numerous metrics. Stateside, futures in the green and grinding higher throughout the morning, ES +1.0%, NQ +1.1%; though, action has been choppy at times with newsflow light thus far ex-earnings. Elsewhere, Maersk earnings were mixed with the name lower despite noting market demand has been strong but warns of slower global container demand ahead.
Top European News
FX
Fixed Income
Commodities
Geopolitics
US Event Calendar
Central Bank speakers