Japan’s Nikkei index experienced a dramatic recovery, surging more than 8 per cent to exceed 34,000 points shortly after the market opened. This rebound came in the wake of a severe selloff that saw the index drop 12.4 per cent on Monday, marking its worst decline since the 1987 Black Monday crash.
The rebound across Asian markets was triggered by reassuring statements from central bank officials, helping to restore investor confidence. The Nikkei had closed at 31,458 on Monday, but quickly surged as trading resumed.
Wall Street also showed signs of stabilisation, with S&P 500 futures gaining 0.9 per cent and Nasdaq futures up 1.2 per cent in early trading. On Monday, the S&P 500 had dropped 3.00per cent, and the Nasdaq Composite had fallen 3.43per cent.
Chris Weston, head of research at Pepperstone, noted that the substantial market movements on Monday, largely driven by forced liquidation of margin positions, were likely to lead to a significant counter rally. Despite this, Weston warned of high implied volatility for the Nikkei, indicating continued market turbulence.
Currency markets saw some reversal of Monday’s sharp movements. The dollar edged up to 145.64 yen after sinking to 141.675 yen. The yen had risen sharply recently as investors exited carry trades, where they borrow yen at low rates to invest in higher-yield assets.
The dollar also pared its losses against the Swiss franc, holding at 0.8546 francs after a low of 0.8430. Yields on 10-year Treasury notes rebounded to 3.84per cent after briefly dipping to 3.667 per cent.
Federal Reserve officials contributed to the market’s stabilisation, with San Francisco Fed President Mary Daly highlighting the importance of avoiding a downturn in the labour market. Daly expressed openness to cutting interest rates if necessary, reinforcing expectations that the Fed might implement a 50 basis point cut in its September meeting.
In precious metals, gold failed to attract a safe-haven bid as investors appeared to be liquidating positions to cover losses elsewhere. Spot gold was trading at $2,409 an ounce, down 1.52 per cent overnight.
Energy markets saw early gains, with US West Texas Intermediate crude futures climbing $1.18, or 1.6 per cent, to $74.12 per barrel. This increase was fuelled by concerns over a potential escalation of conflict following an attack on a US military base in Iraq.
