A Reuters Open Interest newsletter |
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Making sense of the forces driving global markets |
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Escalating tensions in the Middle East and a wave of profit-taking in AI and tech shares cast a long shadow over markets on Wednesday, depressing the price of stocks and bonds while lifting the dollar and oil.
In my column today, I look at why Japan may be "in the money" from its FX interventions. This runs counter to the view that the yen's slide back to previous intervention levels means Tokyo's efforts to support its currency have been in vain.
I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social.
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- STOCKS: Japan's Nikkei +2.5% to new high, Brazil -2%, Dow -1.2%, Nasdaq -0.9%.
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SECTORS/SHARES: Seven sectors in the S&P 500 fall, five rise. Tech -1.5%, energy +1.4%. IBM -7%, Nvidia -4%, Walmart +3.5%. Broadcom hits record high then -7% after the bell.
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FX: Dollar index posts highest U.S. close in 2 months. USD/JPY touches 160.00 'intervention zone' level. NZD and SEK both -1%, biggest G10 movers.
- BONDS: U.S. yields +4 bps at short end, 2026 Fed hike probabilities rise.
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COMMODITIES/METALS: Oil +2%, gold -1%. Other precious metals down 3-5%.
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* IP Oh...
Trillion-dollar IPOs are the talk of the Street. SpaceX's upcoming IPO is expected to value the company at $1.75 trillion, while the Anthropic and OpenAI listings could value both at $1 trillion each. There is some doubt over the market's capacity to absorb the new equity supply, but we'll see how that pans out.
Recent history, however, suggests investors should be wary of chasing big IPOs. Sam Grelck at Truist Advisory Services notes a highly mixed record in the weeks, months and year after major U.S. listings, while every one recorded at least one hefty drawdown in the 12 months after. |
* In the zone
The yen dipped below 160 per dollar on Wednesday, breaching the unofficial threshold many observers reckon is the trigger for Tokyo to intervene in the FX market and prevent the currency from weakening further. The yen is in the "intervention zone".
The last time the yen was below 160 per dollar was April 29, prompting Japan to sell a record $73.5 billion. Yet here we are again only weeks later. Many observers say this is a sign that intervention has failed. The reality may be a bit more nuanced.
* Talking surprises Three U.S. economic indicators on Wednesday, three beats. There are reasons to be cautious on the U.S. economy - not least high and rising inflation, and the threat it poses to consumer spending - but right now, the numbers suggest the economy is in good shape. And getting better.
Look at Wednesday's data: private sector payrolls in May were the highest since January last year, factory orders in April posted their biggest gain in 11 months, and service sector activity in May expanded faster than expected. The U.S. economic surprises index is now the highest since October 2023. Maybe we should be less surprised.
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Japan may be 'in the money' in FX intervention |
The yen's slide back to 160 per dollar, only weeks after Japan's large-scale interventions to support the currency, has called into question the wisdom of such action. But viewed through a wider lens, Tokyo's strategy appears to be working. The argument that Japan is "throwing good money after bad" may not hold water because, when looking at all interventions in recent decades - both buying and selling – Tokyo appears to be in the black. |
The last official yen sales were in 2010, when the yen was around 80 per dollar, and 2011, when the currency hit a record near 76 per dollar. Buying dollars at 80 yen then and selling around 160 now is a pretty good trade, even if an extremely long-term one. |
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