(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.
US Treasuries resumed a selloff last week as continued strength in the economy casts doubt on how much the Federal Reserve can cut rates, while speculation grew that a Trump victory could fan inflation and keep rates elevated. Yields on 10-year bonds closed Friday at 4.24% after touching the highest since July earlier last week.
Elsewhere in Asia this week, major Chinese banks will release earnings reports while the Bank of Japan will give a policy decision. Australia’s inflation data and the official and private Chinese PMI readings will also be closely parsed to help gauge the outlook on the risk-sensitive Aussie and NZ currencies.
Some of the key events this week:
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Japan markets open after general election, Monday
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Bank of Canada Governor Tiff Macklem speaks, Monday
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Japan unemployment, Tuesday
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US job openings, Conference Board consumer confidence, goods trade, Tuesday
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Alphabet, HSBC, Santander earnings, Tuesday
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Australia CPI, Wednesday
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Eurozone consumer confidence, GDP, Wednesday
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Germany GDP, CPI, unemployment, Wednesday
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UK Chancellor of the Exchequer Rachel Reeves presents budget to Parliament, Wednesday
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US GDP, ADP employment, Wednesday
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Meta, Microsoft, UBS, Volkswagen earnings, Wednesday
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US Treasury Department holds quarterly refunding announcement of bond-auction plans, Wednesday
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Australia retail sales, Thursday
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China Manufacturing and non-manufacturing PMI, Thursday
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Eurozone CPI, Thursday
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Bank of Japan policy decision, Thursday
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US PCE data, Thursday
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Canada GDP, Thursday
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Amazon, Apple, Samsung earnings, Thursday
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China Caixin manufacturing PMI, Friday
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UK S&P Global Manufacturing PMI, Friday
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US nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures rose 0.4% as of 8:13 a.m. Tokyo time
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Hang Seng futures fell 0.4%
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Australia’s S&P/ASX 200 rose 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0800
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The Japanese yen fell 0.4% to 152.97 per dollar
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The offshore yuan fell 0.1% to 7.1439 per dollar
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The Australian dollar was unchanged at $0.6608
Cryptocurrencies
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Bitcoin rose 0.7% to $68,190.98
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Ether rose 1.2% to $2,518.98
Bonds
Commodities
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West Texas Intermediate crude fell 4.2% to $68.75 a barrel
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Spot gold fell 0.4% to $2,736.94 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Michael G. Wilson.
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