Rebounds Despite S&P500 Futures Weakness, DXY Silent, PBOC Intervenes

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  • Asian indices rebounded strongly despite the lack of support from S&P500 futures.
  • The PBOC intervened in the currency markets to provide a cushion for the weakening yuan.
  • The DXY is down to a two-week low at 110.76 as alpha on US government bonds fell.

Markets in the Asian domain rebounded strongly from individual headwinds despite a vertical drop in S&P500 futures. The 500-stock futures basket fell 0.90% after a three-day buying spree as tech giant Microsoft (MSFT) cut its sales growth forecast by 5%. Morgan Stanley economists believe the S&P500 rally may well extend into the 4000/4150 area. Therefore, a drop in the US index could be seen as a corrective move.

At press time, the Japanese Nikkei225 gained 0.84%, ChinaA50 jumped 1.15% and Hang Seng climbed 1.43%. Indian markets are closed due to Diwali Balipratipada.

Chinese markets rebounded strongly as investors shrugged off uncertainty that rose after the leadership of China’s third-term Jinping XI received the green signal. Meanwhile, Reuters reported that the People’s Bank of China (PBOC) intervened in currency markets to support the weakening yuan. Reports claim that Chinese state banks sold US dollars in onshore and offshore markets on Tuesday.

Japanese investors turned their attention to the Bank of Japan’s (BOJ) interest rate decision, due Friday. BOJ Governor Haruhiko Kuroda is expected to maintain a dovish tone on interest rates to protect the economy against external shocks. The prolonged weakness of the Japanese yen is having a significant impact on importers. Purchases of imported goods, from oil to foodstuffs, require US dollars for payments, hurting companies that rely on raw materials from foreign suppliers.

On the front of the US Dollar Index (DXY), the mighty DXY is showing a sharp move lower after failing to hold above the 111.00 hurdle. The DXY is likely to exit the 2-week low of 110.76 amid general optimism in the market mindset. Yields on the 10-year US Treasury fell further to 4.08%.

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