By Jamie McGeever
ORLANDO, Florida, Aug 3 (Reuters) – U.S. stocks rallied strongly and the Dow notched a record-high close on Monday, boosted by solid manufacturing data and optimism around earnings and U.S.-Iran peace hopes, while the yen slumped to a three-month low after a historic bout of coordinated U.S.-Japanese intervention.
In my column today, I look at the U.S. Treasury’s activity in the FX market buying Japanese yen. Treasury’s goals may have been conventional, but its methods weren’t, and the timing may also speak to deeper concerns about the U.S. bond market.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. How a US-Japan pact to hit yen speculators came together
2. US manufacturing activity hits more than four-year high; input prices elevated
3. EXCLUSIVE-Fed’s Williams expects inflation to ease, says Fed will act if it doesn’t
4. Iran war ushers in oil refining golden era. It won’t last: Bousso
5. AstraZeneca investors balk at prospect of $400 billion Bristol Myers pharma deal
Today’s Key Market Moves
• STOCKS: South Korea -5%, Japan -1%. Big 3 U.S. indices all +1% or more, Dow hits new high.
• SECTORS/SHARES: Eight sectors on the S&P 500 rise, three fall. Comms services +4%, consumer discretionaries +2.7%. Amazon hits $3 trillion market cap. Oracle +9%, Boeing +8%, Microsoft and Alphabet +5%, eBay -6%.
• FX: Dollar/yen tumbles as low as 155.20, euro/yen below 180.00 for first time since November.
• BONDS: 2-year JGB yield 1.56%, highest in 31 years; 5-year JGB yield 2.09%, highest in 30 years. U.S. yields fall 4-7 bps on oil slide.
• COMMODITIES/METALS: Oil -7% to 3-week low. Gold little changed, hovering above $4,000/oz.
Today’s Talking Points:
Spend to defend
Japan is estimated to have spent almost $100 billion over a 48-hour period last week in FX intervention to support the yen — $36.6 billion on Friday, and $59 billion on Thursday. This follows a $73 billion spree in April-May this year, $36.8 billion in July 2024, $62.2 billion in April-May 2024, and $42.8 billion in October 2022.
Added together, Japan has spent around $310 billion over the past four years defending its currency. Has it worked? That’s subjective. Absent that demand, the yen may well have sunk a lot lower than the 40-year low 164 per dollar recently. But we’ll never know. That’s a lot of dollars, and a chunk of it will have come from repo and other funding routes. But if it has prevented a much weaker and more volatile currency, Tokyo may see it as money well spent.
Bouncebackability
The word “bouncebackability,” popularized in British football parlance, describes a player or team’s powers of resilience and penchant for overcoming often multiple setbacks. Wall Street is showing those characteristics, in spades, with the S&P 500 on Monday rebounding to within 0.5% of its record high and the Dow notching a fresh record-high close.
Investors are putting the recent chip rout to one side, and are taking their cue from the earnings picture, which could hardly be more bullish. The LSEG I/B/E/S Q2 annual consensus U.S. earnings growth forecast is now running at an astonishing 47.7%, virtually double what it was only a month ago.
Factory Whirl
Investors have had a few financial market wobbles to worry about recently: South Korean stocks, the global chip sector more broadly, the yen, and long-dated bonds, to name a few. But when it comes to the real economy, things have been much less volatile. If there’s any background noise, it’s the sound of global factories purring along rather nicely.
The latest purchasing managers index data show U.S. factory activity expanded in July at its fastest pace in over four years, euro zone output was the highest in four and a half years, and Japan’s manufacturing PMI leaped to a 12-year high. There are weak spots, of course — China, India, UK — but overall, the AI capex boom is helping to keep the world’s manufacturers and producers busy.
What could move markets tomorrow?
• South Korea inflation (July)
• Canada manufacturing PMI (July)
• U.S. trade (June)
• U.S. ‘JOLTS’ job openings (July)
• U.S. earnings, including SpaceX, AMD, Caterpillar, McDonald’s
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by Bill Berkrot)
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