Japan Stocks Poised to Fall on Rate Hike Worries: Markets Wrap

(Bloomberg) — Japanese stocks are set to slump early Monday after ruling party elections raised expectations of further central bank interest rate hikes. Traders will also be closely watching events in the Middle East.

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Nikkei 225 futures fell about 6% after the yen surged following Shigeru Ishiba’s victory over dovish opponent Sanae Takaichi in a run-off for the Liberal Democratic Party leadership. Ishiba has said he supports the Bank of Japan’s independence and normalization path in principle, and that the country needs to defeat deflation. The dollar was steady against major peers in early trading.

Australian equity futures point to an early gain, while those in Hong Kong were flat. US contracts were steady after the S&P 500 closed slightly lower on Friday. A gauge of US-listed Chinese shares climbed 4% Friday after China unveiled more stimulus measures.

Markets are showing signs of optimism into the final quarter of the year as signs grow on an improving global economic outlook following China’s measures and as central banks from Indonesia to Europe and the US begin cutting interest rates to support growth. US stocks are set to outperform Treasuries for the remainder of the year, while emerging markets are preferred to developed ones, according to the latest Bloomberg Markets Live Pulse survey.

Sentiment may be dampened however should tensions in the Middle East escalate. Oil edged lower in early trading Monday, as traders await the response to Israel’s killing of Hezbollah chief Hassan Nasrallah in an air strike on the group’s headquarters in Lebanon’s capital Beirut on Friday.

The strike came after the US, France and Arab countries had been trying to deescalate the situation in recent days and prevent an Israeli ground offensive on southern Lebanon, which they fear could trigger a region-wide war.

Iran’s embassy in Beirut said Israel’s strikes are a dangerous escalation and will being about the appropriate punishment. President Masoud Pezeshkian however has stopped short of pledging a direct and immediate attack on Israel in retaliation.

“For markets, it boils down to what Iran decides to do,” Minna Kuusisto at Danske Bank wrote in a note to clients. “A full-blown war in Lebanon would bring another war right at Europe’s doorstep, but markets will ignore human suffering as long as oil trade remains intact.”

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US Treasuries rallied Friday as the Fed’s preferred measure of underlying US inflation and household spending rose modestly in August, underscoring a cooling economy. Traders have priced about 72 basis points of easing by year-end, implying a strong chance that the Fed will cut interest rates by 50 basis points at one of the final two meetings this year, according to data compiled by Bloomberg.

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 7:42 a.m. Tokyo time

• Hang Seng futures were little changed

• S&P/ASX 200 futures rose 0.3%

• Nikkei 225 futures fell 6%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1169

• The Japanese yen fell 0.3% to 142.61 per dollar

• The offshore yuan was little changed at 6.9791 per dollar

• The Australian dollar rose 0.2% to $0.6914

Cryptocurrencies

• Bitcoin fell 0.2% to $65,679.13

• Ether was little changed at $2,659.61

Bonds

Commodities

• West Texas Intermediate crude fell 0.3% to $68 a barrel

• Spot gold rose 0.2% to $2,663.07 an ounce

This story was produced with the assistance of Bloomberg Automation.

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