Recovery of Japanese stock markets after historic losses

Japanese stocks surged on Tuesday, aiding a recovery in the beleaguered Asian equity markets, after central bank representatives struck a reassuring tone that calmed investors' nerves. The Nikkei climbed by more than 10% to over 34,500 points, rebounding significantly from its previous close at 31,458. On Monday, the index had suffered its worst loss since Black Monday in 1987, plummeting by 12.4%. The MSCI index for Asia-Pacific stocks excluding Japan rose by 2.0%. Wall Street also showed signs of stabilization, with S&P 500 futures rising by 1.5%, Nasdaq futures up by 2%, and pan-European Euro Stoxx 50 futures improving by 1.24%. Tech stocks such as Nvidia, Apple, and Amazon had faced losses on Monday, exacerbating recent sell-offs amid recession fears in the US. Yields on 10-year US Treasury notes recovered to 3.84% after temporarily dipping to 3.667%. Federal Reserve representatives made efforts to calm the markets, with San Francisco Fed President Mary Daly emphasizing the importance of preventing a labor market downturn and expressing openness to rate cuts if necessary. "The Nikkei is seeing a decent bounce-back from Monday's plunge, as comments from Daly and a stronger-than-expected ISM services report have eased fears of a panicked Fed intervention next week," said Matt Simpson, Senior Market Analyst at City Index in Brisbane. "But this isn't exactly a risk-on rally. We don't know yet if this is just a pause between further strains." Currencies also corrected some of Monday's severe movements. The dollar rose to 145.64 yen after falling by 1.5% to 141.675 yen on Monday. The yen had surged in recent sessions as investors exited carry trades. The dollar reduced its losses against the safe-haven Swiss franc, holding at 0.8546 francs. Yields on Treasury notes rose partly due to a rebound in the US ISM services index to 51.4 for July. The employment index notably climbed by 5 points to 51.1, suggesting that last week’s labor market report had exaggerated the weakness. "Assessing the bottom of such historic declines is complicated, and investors will likely remain cautious before re-entering stock markets," said Boris Kovacevic, global macro strategist at the payment company Convera in Austria. Market expectations that the Fed will cut its rate by 50 basis points at the September meeting persisted, with a 71% probability for this move. In the precious metals market, gold did not receive safe-haven flows despite chatter that investors were taking profits to cover other losses. The gold price stood at $2,409 per ounce, having dropped by 1.52% overnight. In the energy markets, oil prices rose early Tuesday after news broke that several US soldiers were injured in an attack on a military base in Iraq, fueling fears of a wider conflict. West Texas Intermediate crude futures climbed by $1.18, or 1.6%, to $74.12 per barrel.