Yen Drops as Japan Election Unnerves Investors: Markets Wrap

(Bloomberg) — The yen fell to its weakest level in almost three months after Japan’s ruling coalition failed to win a majority in parliament at the weekend’s election. Crude tumbled after Israeli strikes on Iran avoided oil facilities.

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The Japanese currency fell as much as 0.6% to 153.27 per dollar early Monday as political instability looms after a gamble by Prime Minister Shigeru Ishiba to call a snap election backfired. Tokyo stocks are set to come under pressure after equity futures dropped.

The election result “opens risks for a hung parliament and so further fiscal spending,” Bob Savage, head of markets strategy and insights at BNY, wrote in a note to clients. “The markets are likely to think this means more trouble for the yen, with 155 per dollar the first target.”

Australian shares edged higher in early trading and US equity futures climbed. Hong Kong contracts were down.

Crude plunged after Iran said its oil industry was operating normally after Israel struck military targets across the country. Brent crude dropped and West Texas Intermediate fell by more than 5% in early trading before paring declines. Gold edged lower.

Chinese shares will be closely watched after profits at China’s industrial firms in September declined 27.1% from a year earlier, posing a challenge to the nation’s economy as deflationary pressures sap the strength of corporate finances.

Trump Trades

Markets are readying for barrage of data this week including Chinese economic activity readings, Eurozone and US growth prints as well as a payrolls report to help position portfolios into year-end. Traders will also fine tune expectations of the US election after Asian and emerging market assets extended a slide last week in anticipation Donald Trump will return to the White House.

“As the elections approach and Trump trades increasingly are implemented, the US dollar may remain on the front foot while US rates remain elevated, creating a somewhat painful backdrop for emerging market assets,” Barclays Plc strategists led by Themistoklis Fiotakis wrote in a note to clients. While it may worsen in a Trump win, “there has already been some degree of election premium built into currency markets over recent weeks.”

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

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