Japanese stocks are about to fall on interest rate hike concerns: markets close

(Bloomberg) — Japanese stocks are set to slump early Monday after ruling party elections raised expectations of further interest rate hikes by central banks. Traders will also be keeping a close eye on events in the Middle East.

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Nikkei 225 futures fell about 6% after the yen rose following Shigeru Ishiba’s victory over dovish opponent Sanae Takaichi in a runoff for the leadership of the Liberal Democratic Party. Ishiba has said he supports the Bank of Japan’s independence and normalization path in principle, and that the country must beat deflation. The dollar was steady against major peers in early trading.

Australian stock futures point to early gains, while Hong Kong’s were flat. US contracts held steady after the S&P 500 closed slightly lower on Friday. A gauge of US-listed Chinese stocks rose 4% on Friday after China unveiled more stimulus measures.

Markets are showing signs of optimism in the final quarter of the year as there are increasing signs of an improving global economic outlook following China’s measures, and as central banks in Indonesia, Europe and the US begin to cut interest rates to boost growth to support. According to the latest Bloomberg Markets Live Pulse survey, US stocks will outperform Treasuries for the rest of the year, while emerging markets are favored over developed markets.

However, sentiment may be dampened if tensions in the Middle East escalate. Oil fell in early trading on Monday as traders await the response to Israel’s killing of Hezbollah chief Hassan Nasrallah on Friday in an airstrike on the group’s headquarters in the Lebanese capital Beirut.

The attack came after the US, France and Arab countries tried in recent days to de-escalate the situation and prevent an Israeli ground offensive on southern Lebanon that they fear could trigger a war across the region.

The Iranian embassy in Beirut said Israel’s attacks represent a dangerous escalation and will be appropriate punishment. However, President Masoud Pezeshkian has failed to launch a direct and immediate attack on Israel in retaliation.

“For the markets, it comes down to what Iran decides to do,” Minna Kuusisto of Danske Bank wrote in a note to clients. “An outright war in Lebanon would bring another war to Europe’s doorstep, but markets will ignore human suffering as long as the oil trade remains intact.”

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U.S. Treasury bonds rose on Friday after the Fed’s favorite measure of underlying U.S. inflation and household spending rose modestly in August, underscoring a cooling economy. Traders have priced in about 72 basis points of easing by year’s end, implying a high probability the Fed will cut rates by 50 basis points at one of its final two meetings this year, data compiled by Bloomberg show.

Some of the major moves in the markets:

Stocks

• Futures on the S&P 500 were little changed at 7:42 a.m. Tokyo time

• Hang Seng futures were little changed

• S&P/ASX 200 futures rose 0.3%

• Nikkei 225 futures fell 6%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1169

• The Japanese yen fell 0.3% to 142.61 per dollar

• The offshore yuan was little changed at 6.9791 per dollar

• The Australian dollar rose 0.2% to $0.6914

Cryptocurrencies

• Bitcoin fell 0.2% to $65,679.13

• Ether was little changed at $2,659.61

Bonds

Raw materials

• West Texas Intermediate crude fell 0.3% to $68 a barrel

• Spot gold rose 0.2% to $2,663.07 an ounce

This story was produced with the help of Bloomberg Automation.

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