Yen Drops as Japan Election Unnerves Investors: Markets Wrap

(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 fell 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.”

Asian equity futures are pointing to a cautious open, with contracts in Australia and Hong Kong edging lower. US contracts climbed in early trading after the S&P 500 closed little changed on Friday.

Crude fell in early trading after Iran said its oil industry is operating normally after Israel struck military targets across the country. Brent crude dropped 5% after rising by 2.3% on Friday, with West Texas Intermediate declining by a similar amount. 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:

Japan markets open after general election, Monday
Bank of Canada Governor Tiff Macklem speaks, Monday
Japan unemployment, Tuesday
US job openings, Conference Board consumer confidence, goods trade, Tuesday
Alphabet, HSBC, Santander earnings, Tuesday
Australia CPI, Wednesday
Eurozone consumer confidence, GDP, Wednesday
Germany GDP, CPI, unemployment, Wednesday
UK Chancellor of the Exchequer Rachel Reeves presents budget to Parliament, Wednesday
US GDP, ADP employment, Wednesday
Meta, Microsoft, UBS, Volkswagen earnings, Wednesday
US Treasury Department holds quarterly refunding announcement of bond-auction plans, Wednesday
Australia retail sales, Thursday
China Manufacturing and non-manufacturing PMI, Thursday
Eurozone CPI, Thursday
Bank of Japan policy decision, Thursday
US PCE data, Thursday
Canada GDP, Thursday
Amazon, Apple, Samsung earnings, Thursday
China Caixin manufacturing PMI, Friday
UK S&P Global Manufacturing PMI, Friday
US nonfarm payrolls, Friday

Some of the main moves in markets:

Currencies

The Japanese yen fell 0.5% to 153.13 per dollar as of 7:28 a.m. Tokyo time
The euro was little changed at $1.0792
The offshore yuan fell 0.1% to 7.1429 per dollar
The Australian dollar was little changed at $0.6604

Stocks

Cryptocurrencies

Bitcoin rose 0.7% to $68,179.07
Ether rose 1.3% to $2,521.2

Bonds

Commodities

West Texas Intermediate crude fell 4.6% to $68.50 a barrel
Spot gold fell 0.5% to $2,733.56 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Michael G. Wilson.