Tokyo led gains in Asia to close up more than 10%, making up some of its losses from a weak start to the week
Wall Street stocks rebounded on Tuesday from a big decline in a calmer session as analysts pointed to bargain hunting while warning that the market could be in store for more turbulence.
Tokyo, which suffered a record loss Monday, led gains in Asia to close up more than 10%, making up some of its losses from a weak start to the week as traders bought beaten-down stocks.
After Monday’s rout, major US indices spent most of the session in positive territory. The broad-based S&P 500 finished up 1%.
I’m hopeful that we will get some stability back, said Jack Ablin of Cresset Capital, adding that there could still be a little more downside risks to the market.
But the equity market bounce back failed to gain much traction in Europe, where the main markets ended narrowly mixed.
Monday’s sell-off followed data Friday showing fewer US jobs than expected were created last month, while another report pointed to continuing weakness in the manufacturing sector.
Monday’s slump was also triggered by a rally in the value of the yen, which threw a wrench into a common trading strategy of borrowing at low interest rates in Japan and investing in high yielding assets elsewhere, such as US tech stocks.
With the BoJ raising interest rates last week and the Fed poised to reduce rates, this so-called yen carry trade was at risk and many investors needed to dump assets to cover their positions, magnifying the rout.
With the yen giving up some of its recent gains Tuesday, the markets were calmer.
The carry-trade unwinding might have settled down for now, but this market is understandably leery of it revving back up, given how entrenched it had become with Japan holding rates below zero, or near zero, for so long, according to Briefing.com analyst Patrick O’Hare.
David Morrison, senior market analyst at Trade Nation, said “we have no idea how far through the carry-trade unwind we are”, adding that the probability is that this isn’t over.
