By Rae Wee
SINGAPORE (Reuters) -Political upheaval in Japan and France gripped currency and bond markets for a second day running on Tuesday, while global shares sputtered despite a multi-billion dollar chip-supply deal between AMD and OpenAI.
Broader European stock futures pointed to a muted opening, with EUROSTOXX 50 futures flat and FTSE futures down 0.08%.
The weekend election of fiscal and monetary dove Sanae Takaichi as leader of the ruling party in Japan propelled the Nikkei to yet another record high early in the session, as her likely appointment as the country’s next premier stoked bets on a revival in big spending and loose monetary policy.
The yen struggled on the weaker side of the 150 per dollar level and sank to a two-month low, while Japanese government bonds slid, pushing yields higher.
A closely watched auction of 536.8 billion yen ($3.57 billion) of 30-year JGBs passed smoothly, allaying some worries that investors might baulk at buying long-dated debt given the fiscal uncertainty.
“The yen looks likely to remain under pressure for some time. The political shift under Sanae Takaichi has reinforced expectations that fiscal stimulus will take precedence over monetary tightening, reducing the odds of a near-term BOJ rate hike,” said Tareck Horchani, head of prime brokerage dealing at Maybank Securities.
“Fiscal expansion financed by higher bond issuance is also steepening the yield curve and weighing further on sentiment toward the currency.”
Finance Minister Katsunobu Kato said on Tuesday that the government will be vigilant to volatile movements on the currency market.
In France, the shock resignation of Sebastien Lecornu as prime minister threw the nation deeper into political crisis and unnerved markets.
French OAT futures fell slightly in the early Asian session after bonds tumbled on Monday, while the euro came under pressure and eased 0.14% to $1.1696.
“(President Emmanuel) Macron could try to put together a new cabinet for the National Assembly’s approval. But in the interim, Macron is likely to come under a lot of pressure to dissolve the National Assembly and move toward completely new legislative elections,” said Thierry Wizman, global FX and rates strategist at Macquarie Group.
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The political jolts across major economies, made no better by a lengthening U.S. government shutdown, gave investors little to cheer about, with the overall mood sombre, overshadowing enthusiasm about artificial intelligence.
AMD will supply AI chips to OpenAI in a multi-year deal that would bring AMD tens of billions of dollars in annual revenue and give the ChatGPT creator the option to buy up to roughly 10% of the chipmaker.
Nasdaq futures were down 0.02% in Asia and S&P 500 futures eased 0.05%, retreating slightly from their record closing highs on Monday.
Markets in Hong Kong and China were closed for a holiday. The MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.38%.
In currencies, the U.S. dollar was on the front foot, helped in part by weakness in the yen and euro. Sterling was down 0.11% to $1.3470. The Aussie fell 0.09% to $0.6612.
“A buoyant USD despite the U.S. shutdown has probably wrong-footed some and intrigued many insofar as it flies in the face of received wisdom that the USD weakens into shutdowns,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho.
“Recent evidence from comparable shutdowns in December 2018 and October 2013 suggest that USD declines were considerably reversed within two weeks out of the shutdown. And so, the case to go big on bearish USD bets is less compelling.”
Elsewhere, oil prices steadied on Tuesday, with Brent crude futures up 0.15% to $65.57 a barrel, while U.S. crude rose 0.15% to $61.78. [O/R]
Spot gold hit an all-time high of $3,977.19 an ounce, while bitcoin similarly hovered near a record peak, as investors turned to alternative assets as a store of value.
(Reporting by Rae Wee; Editing by Christopher Cushing and Kim Coghill)
