Yen Drops as Japan Election Unnerves Investors: Markets Wrap

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(Bloomberg) — The yen fell to its weakest level in nearly three months after Japan’s ruling coalition failed to win a majority in parliament in weekend elections. The price of crude oil fell after Israeli strikes on Iran’s oil facilities were avoided.

The Japanese currency fell as much as 0.6% to 153.27 to the dollar early Monday as political instability emerged after Prime Minister Shigeru Ishiba’s gamble to call early elections backfired. Tokyo stocks are expected to come under pressure after stock futures fell.

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The election result “opens up the risk of a hung parliament and thus more fiscal spending,” Bob Savage, head of markets strategy and insights at BNY, wrote in a note to clients. “Markets are likely to think this means more trouble for the yen, as the first target will be 155 yen to the dollar.”

Australian shares rose in early trading and US stock futures rose. Hong Kong futures fell.

The price of crude oil fell after Iran said its oil industry was operating normally after Israel struck military targets across the country. Brent crude fell and WTI fell more than 5% in early trading before paring declines. Gold fell.

Chinese stocks will be closely watched after profits at Chinese industrial companies in September fell by 27.1% from a year earlier, posing a challenge for the country’s economy as deflationary pressures drain the strength of companies’ finances.

Trump deals

Markets are gearing up for a barrage of data this week including Chinese economic activity readings, growth readings in the Eurozone and the US as well as a payroll report to help position investment portfolios at the end of the year. Traders will also be adjusting US election expectations after Asian and emerging market assets continued to fall last week in anticipation of Donald Trump’s return to the White House.

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“With the election looming and Trump’s trades increasingly executing, the US dollar may remain ahead while US interest rates remain elevated, creating a somewhat painful backdrop for emerging market assets,” Barclays strategists led by Themistocles Viotakis wrote in a note to Reuters. Clients. Although the situation may worsen if Trump wins, “there has already been a certain degree of electoral premium built into currency markets in recent weeks.”

The rally in stocks faded on Friday, with the S&P 500 posting its first weekly loss in seven weeks as gains in technology stocks failed to offset a decline in banking stocks. Five of the so-called Magnificent Seven report earnings this week and are expected to post the slowest collective expansion of quarterly earnings in six quarters, according to data compiled by Bloomberg Intelligence.

US Treasuries resumed selling last week, as continued strength in the economy cast doubt on the extent to which the Federal Reserve could cut interest rates, while speculation mounted that a Trump win could boost inflation and keep interest rates high. 10-year bond yields closed Friday at 4.24% after touching their highest levels since July earlier last week.

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Elsewhere in Asia this week, major Chinese banks will release their earnings reports while the Bank of Japan will issue a policy decision. Australian inflation data and official and private Chinese PMI readings will also be closely analyzed to help gauge expectations for the risk-sensitive Australian and New Zealand currencies.

Some key events this week:

• Japanese markets open after the general elections, Monday
• Bank of Canada Governor Tiff Macklem speaks Monday
• Unemployment in Japan Tuesday
• US Job Opportunities, Consumer Confidence and Commodity Trade Conference, Tuesday
• Alphabet, HSBC and Santander earnings on Tuesday
• Australian Consumer Price Index, Wednesday
• Eurozone consumer confidence, GDP, Wednesday
• German GDP, CPI, Unemployment, Wednesday
• British Treasury Secretary Rachel Reeves presents the budget to Parliament on Wednesday
• US GDP, Employment at ADP, Wednesday
• Meta, Microsoft, UBS and Volkswagen earnings on Wednesday
• The US Treasury is holding a quarterly announcement of redemption bond auction plans on Wednesday
• Retail sales in Australia, Thursday
• China manufacturing and non-manufacturing PMI, Thursday
• Eurozone consumer price index, Thursday
• Bank of Japan policy decision on Thursday
• US personal consumption expenditures data, Thursday
• Canada’s GDP, Thursday
• Amazon, Apple and Samsung earnings on Thursday
• China Caixin Manufacturing PMI, Friday
• UK S&P Global Manufacturing PMI, Friday
• US Nonfarm Payrolls Report, Friday

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Some key movements in the markets:

Stocks

• S&P 500 futures rose 0.4% as of 8:13 a.m. Tokyo time
• Hang Seng futures fell 0.4%
• Australia’s S&P/ASX 200 rose 0.2%.

Currencies

• The Bloomberg Dollar Spot Index was little changed
• There was little change in the euro at $1.0800
• The Japanese yen fell 0.4 percent to 152.97 yen to the dollar
• The yuan in external transactions fell 0.1 percent to 7.1439 per dollar
• The Australian dollar was unchanged at $0.6608

Cryptocurrencies

• Bitcoin rose 0.7% to $68,190.98
• Ethereum rose 1.2% to $2,518.98

Bonds

• The yield on Australian 10-year bonds rose by five basis points to 4.46%.

Goods

• West Texas Intermediate crude fell 4.2% to $68.75 a barrel
• Gold in spot transactions fell 0.4 percent to $2,736.94 per ounce

This story was produced with assistance from Bloomberg Automation.

-With assistance from Michael J. Wilson.

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