Asia’s stock markets had a relatively muted start to the fourth quarter, with trading volumes being thin due to holidays in India, Hong Kong, and China. The Japanese Nikkei initially surged, driven by a weaker yen, but later retreated to flat levels in the afternoon. The yen’s weakness benefits exporters as it improves the pricing of their foreign earnings. Additionally, an agreement reached over the weekend to avert a US government shutdown provided a boost to market sentiment and lifted US stock futures. The European futures also showed a slight rise of 0.2%. However, analysts note that the risks of a shutdown are only delayed, and market volatility is expected to persist.
Bond and foreign exchange markets continue to be guided by the expectation of high US interest rates, leading to selling in Japanese bonds. The rise in Japanese government bond yields to their highest level in a decade prompted the Bank of Japan to announce its plan to purchase bonds with a 5-10 year maturity on Wednesday. In the US Treasury market, 10-year yields increased by 4 basis points to 4.6124%, while the two-year yield rose to $5.0832%. The dollar remained strong in currency markets due to the relative resilience of US economic growth and the hawkish stance of the Federal Reserve. However, pressure on the Australian and New Zealand dollars persisted due to mixed China factory surveys and expectations of no changes in interest rates at upcoming central bank meetings.
Crude oil prices stabilized after declining towards the end of last week. Brent December crude futures rose slightly to $92.36 a barrel, while US West Texas Intermediate crude futures gained 0.1% to $90.99 a barrel. Overall, markets are cautiously optimistic, with reduced uncertainty but lingering concerns about potential future catalysts and a possible government shutdown.