The Asia Pacific market is changing rapidly!
The Asia Pacific market, which was still weakening yesterday, has rebounded strongly today. The Nikkei 225 index rose over 3.5% at one point and closed up 3.4% at 36833.27 points. The Taiwan Weighted Index closed up 3%. The major stock indices in Hong Kong and South Korea have all risen by over 1%. At the same time, the strong currencies of various Asia Pacific countries fell across the board yesterday, and the negative correlation between exchange rates and equity has become more apparent in recent times.
So, what is the logic behind this? Firstly, from the perspective of the upward structure, due to the sharp rise in the Philadelphia Semiconductor Index last night, the chip and consumer electronics trends in the Asia Pacific market are becoming stronger today. Secondly, from an economic perspective, Japan's Producer Price Index rose by 2.5% year-on-year in August, lower than the expected 2.8% and last month's 3%. This data is one of the key indicators closely monitored by the Bank of Japan, which has hinted at further interest rate hikes in the coming months. However, Naoki Tamura, a member of the review committee of the Bank of Japan, stated that the pace of interest rate adjustments depends on prices and economic conditions. The Bank of Japan may not necessarily raise interest rates in 2024, and the timing of the rate hike cannot be predicted.
A wave that stirred up a thousand layers of waves
If Nvidia saved the US stock market last night, it can also be said that it saved the Asia Pacific market today.
On September 11th, Nvidia founder Huang Renxun stated at a Goldman Sachs technology conference in San Francisco that Nvidia's latest Blackwell chip is in high demand, leading to strained relationships with customers and efforts to resolve them. Revealing that the popularity of AI chips is not decreasing. The stock surged over 8% last night, directly driving the Philadelphia Semiconductor Index to soar.
Today, the Asia Pacific market opened, and the stock indices of related markets also directly exploded. As of the close, the Taiwan Stock Exchange Weighted Stock Index closed up 3% at 21653.25 points. Hon Hai Precision rose 4.7%.
The Nikkei 225 index rose over 3.5% at one point and closed up 3.4% at 36833.27 points. The Japan Eastern Stock Exchange index closed up 2.4%. Semiconductor related stocks Tokyo Electronics rose nearly 5% at one point, Advantest rose 9% at one point, and Renesas Electronics rose 3.47% at one point. SoftBank Group owns shares in chip design company Arm, which rose by over 8% at one point.
The South Korean KOSPI index rose over 2%, with small cap stock Kosdak up 3%, SK Hynix up over 8%, and Samsung Electronics up nearly 2%. At the same time, the Hang Seng Technology Index, Hang Seng Index, and State Owned Enterprises Index in Hong Kong all rose by over 1%. Overall, almost all major markets in the Asia Pacific region are trending red.
On the other hand, in today's exchange rate market, after experiencing the frenzy of yesterday's morning session, the exchange rates of various countries in the Asia Pacific region have begun to decline, especially the Japanese yen exchange rate. The US dollar has already broken away from its low against the Japanese yen and has rebounded significantly today. It is worth noting that this occurred under the hawkish rhetoric of Japanese officials. It is evident that the equity market is still heavily influenced by the trend of the Japanese yen exchange rate.
Market instability
Actually, the market has been quite unstable recently. Price fluctuations are often caused by certain statements, rather than being determined by the fundamentals of the company and industry. This often means that before the US dollar cuts interest rates, various market expectations are full of instability. The reasons for this instability come from three aspects: firstly, due to excessive trading and interest rate cuts in the past, the market is at a high valuation level, and some funds have a need for realization; Secondly, interest rate cuts may bring about changes in the price of carry interest funds, such as the possibility of a reversal in yen arbitrage trading; Thirdly, as the demand from the peripheral macroeconomy weakens, the economic fundamentals are also in an unstable state.
From a technical perspective, the trend of the Japanese yen is the most crucial. One analysis suggests that the market expects the start of the Federal Reserve's interest rate cut cycle to be slower than previously anticipated, but this will not prevent the yen from strengthening against the US dollar. The six-month swap rate in Japan has almost returned to the level since the Bank of Japan last raised interest rates, indicating that the market believes that the number of interest rate hikes in the next six months will be almost as many as at that time. Therefore, it may not be a coincidence that the Japanese yen hit its 2024 high on Wednesday, as the correlation between the yen and the 6-month swap rate is the highest in many years.
The slight rebound in the core monthly rate of the US CPI has led traders to reduce their bets on a Fed rate cut, and now traders only believe that the Fed will cut interest rates by 25 basis points in September. But the total amount of interest rate cuts included in the current easing cycle in the United States has increased, and the market believes that the Federal Reserve will cumulatively cut interest rates by 244 basis points in its nine meetings until September next year. All of this means that even if the interest rate gap between the two countries continues to widen in the coming months, the exchange rate of the Japanese yen against the US dollar will continue to rise.
However, based on the statements of the Bank of Japan and some financial officials in Japan, the expectations are not particularly clear. Bank of Japan hawkish member Naoki Tamura said on Thursday that interest rates must be raised to at least 1% by the end of next year, strengthening the bank's determination to normalize monetary policy. This is also the first time that a decision maker of the Bank of Japan has publicly announced an interest rate target. The possibility of the 2% inflation target set by the Bank of Japan continues to approach, which means that interest rates must be raised to an economically neutral level around the end of 2025.
He also stated that it is necessary to raise interest rates in a timely and gradual manner. The current market view on the path of interest rates is a gradual increase in interest rates. Interest rates will be adjusted based on the certainty of price targets. We need to raise interest rates by examining the economic and inflation situation. The Bank of Japan may not necessarily raise interest rates in 2024, and the timing of the rate hike cannot be predicted.
Yesterday, Shunko Nakagawa, a member of the review committee of the Bank of Japan, stated that if the economic and price performance meets expectations, the Bank of Japan will continue to adjust the degree of policy environment easing. This is an important reason for the huge fluctuations in the Japanese market on that day.
On the other hand, it is evident that the market has high expectations for artificial intelligence. It seems that only the rapid development of artificial intelligence can break the global economic downturn. So, the rise of artificial intelligence last night not only drove the US stock market, but also prompted major stock markets in the Asia Pacific region to collectively counterattack today. Artificial intelligence is undoubtedly an important industry trend, but whether there are any twists and turns in the process is also worth observing.