Asian Markets Brace for Relief Rally
Asian share markets were cautiously optimistic on Tuesday, with futures pointing to a rebound after the previous day's heavy losses. Central bank officials also offered reassuring statements, aiming to calm market nerves.
Nikkei futures surged, suggesting the cash market could open around 2,000 points higher after Monday's 12.4% plunge, its worst selloff since the 1987 Black Monday crash. Wall Street futures also indicated a steadier opening, with S&P 500 and Nasdaq futures rebounding.
Analysts attributed the potential rally to a "counter reaction" following the intense selling pressure witnessed on Monday. However, they cautioned that volatility could remain high, with the Nikkei's implied volatility reaching a stratospheric 70%.
Currency markets also saw some calming, with the dollar edging up against the yen after Monday's sharp decline. The yen had surged as investors unwound carry trades, where they borrowed yen at low rates to buy higher-yielding assets.
Treasury yields also rebounded, partly due to a stronger-than-expected U.S. ISM services index. The index's employment component jumped, suggesting last week's weak payrolls report may have overstated the labor market's weakness.
Federal Reserve officials, including San Francisco Fed President Mary Daly, offered reassuring statements, emphasizing the importance of preventing a downturn in the labor market and expressing openness to cutting interest rates if necessary. These comments reinforced market expectations of a 50 basis point rate cut at the Fed's September meeting.
In commodities, gold prices failed to gain traction, with investors potentially taking profits to cover losses elsewhere. Oil prices, however, bounced back after news of an attack on a U.S. military base in Iraq raised concerns about a wider conflict.