Yen Recovers From Japan Coalition Struggles, Gold Exceeds $4,000
Breathless bulls paused on Friday as record-setting stocks and gold prices experienced a decline, while the dollar aimed for its strongest week in over a year following a series of drops for the yen and euro. A day after a historic ceasefire between Israel and Hamas, political developments continued to unfold rapidly, influencing market movements. Japan’s yen experienced a sudden shift from its downward trend, while the Nikkei saw a decline of 1 per cent following the announcement that the Komeito party was withdrawing from its coalition with the Liberal Democratic Party. That raised doubts over the yet-to-be-confirmed new Prime Minister Sanae Takaichi, whose promises of significant fiscal stimulus and appeals for the Bank of Japan to refrain from rate hikes have weakened the yen and propelled the Nikkei up by 6 percent until Friday.
“If Takaichi doesn’t become prime minister, or at least can’t govern effectively, you don’t really have much of a ‘Takaichi trade’,” stated Chris Scicluna. Asian stocks are predominantly climbing as the tariff truce bolsters market sentiment. European markets experienced a subdued opening as traders awaited developments regarding President Emmanuel Macron’s efforts to navigate France’s political crisis. He is anticipated to appoint his sixth prime minister in less than two years, a figure who confronts the challenging task of navigating a budgetary squeeze through a highly divided parliament. The pan-European STOXX 600 remained stable at 571 points, on track for a third consecutive weekly gain. The CAC 40 in Paris rose by 0.3 percent on the day, alongside the euro, although it is poised for its worst week since July. The yield gap between 10-year French government bonds and ultra-secure German Bunds—a market indicator of the risk premium investors require for holding French debt—has returned to 80 basis points after peaking at 88 basis points earlier in the week. “At the moment the market is happy,” said Daiwa’s Scicluna.
“Next year could well be another very different situation though,” he added, referring to the possibility of everything falling apart again. “Spreads could break out to the highest levels since Mario Draghi’s ‘whatever it takes’ speech,” he stated, referencing the then ECB President’s address in 2012 that sought to resolve the euro crisis. US stock futures have stabilized in Europe, as the third quarter corporate earnings season is set to commence on Wall Street next week. S&P 500 e-minis were up 0.1 percent, while the US dollar index, which measures the greenback’s strength against a basket of six currencies, was on track for a 1.6 percent weekly rise, its best since November, despite a 0.2 percent dip on the day. Chinese stocks experienced a decline of 1.4 percent overnight, following Beijing’s decision to expand its rare earths export controls on Thursday. This move tightens oversight of the sector in anticipation of discussions between Presidents Donald Trump and Xi Jinping. Beijing has intensified the enforcement of its chip import restrictions, with the goal of diminishing domestic technology companies’ reliance on US products, including Nvidia’s artificial intelligence processors. As the US government remains in a state of shutdown, the yield on the benchmark 10-year Treasury bond has decreased to 4.12 percent, down from its US close of 4.14 percent.
Traders anticipate that the Federal Reserve will lower US interest rates once more on October 29, with Fed funds futures indicating a 94.6 percent likelihood of a 25-basis-point rate cut. Gold rose back to $4,000-an-ounce in Europe, following a short period of selling after surpassing this milestone for the first time ever this week. Silver, which has surged even more than gold this year, has also returned above the $50 mark that it first surpassed on Thursday. The rally was supported by several factors, such as geopolitical risks, strong central bank purchases, inflows into exchange-traded funds, anticipation of US rate cuts, and uncertainties related to trade. In energy markets, Brent crude fell 0.7 percent to $64.72 per barrel, following the Israeli government’s ratification of a ceasefire with the Palestinian militant group Hamas on Friday. This development paves the way to suspend hostilities in Gaza within 24 hours and to release Israeli hostages held there in the coming days. The yen experiences a rebound as the coalition in Japan shows signs of faltering, while gold shines brightly above the $4,000 mark.
