(Bloomberg) — Japanese shares extended their rally after the election of a pro-stimulus lawmaker as the country’s next leader sent the yen sliding and drove up yields of long-tenure bonds. Gold set another record as political crises around the world lifted demand for the haven asset.
The Nikkei index gained 0.6% to a new peak, following a 4.8% jump on Monday. Japanese artificial intelligence and chip stocks advanced after Advanced Micro Devices Inc.’s blockbuster deal with OpenAI. The yen held its losses ahead of Tuesday’s government bond auction, the first since Sanae Takaichi’s near-certain ascent to become Japan’s next prime minister. Japanese 30-year bond yield rose to a fresh record of 3.315%.
US stocks closed at a record after a rally fueled by chipmakers. US equity-index futures, however, extended their losses after President Donald Trump called on the Democrats to reopen the government before there can be talks on health care.
While equities worldwide have surged to successive record highs, worries over the US government shutdown and a political crisis in France have driven investors toward alternative assets such as gold and Bitcoin, sending both to new peaks. At the same time, a flurry of AI-related deals among chipmakers has propelled shares higher and fueled concerns of a speculative bubble reminiscent of the late-1990s dot-com era.
“Semiconductors are ‘on fire,’” said Louis Navellier at Navellier & Associates. “The AI narrative continues to gain momentum.”
Technology stocks have been powering a global equity rally, with Monday’s AMD deal being the latest big-budget data center agreement this year. It follows last month’s announcement that Nvidia Corp. was planning to invest as much as $100 billion in OpenAI amid demand for tools like ChatGPT and the computing power needed to make them run.
With “animal spirits” surrounding the AI phenomenon getting yet another boost, Matt Maley at Miller Tabak said it’s no surprise that issues like the US government shutdown are being mostly ignored by traders.
With China and Hong Kong markets closed, investor attention is firmly on Japan. Takaichi’s election shook up global markets with stocks surging on prospects for more spending, while currencies and bonds weakened.
Options traders are the least bullish on the yen in more than three years now that Takaichi appears in-line to become the next prime minister.
Traders are also bracing for the auction of 30-year government bonds.
Two disappointing bond sales last week revived worries about fiscal spending in major markets.
Volatility in Japan’s longer-dated government bonds is on the rise following Takaichi’s win, and the moves may spill over to markets as far away as the US and UK, according to Goldman Sachs Group Inc.
“Concerns over fiscal deterioration and potential credit downgrades have pushed long-term yields higher,” making it more likely the auction will “produce a weak result,” said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management Co.
Corporate News:
The sovereign wealth funds of Abu Dhabi, Norway and Singapore and global money managers including BlackRock Inc. and Fidelity International Ltd. participated in the anchor share sale of LG Electronics Inc.’s Indian unit. A devastating fire at a major supplier for Ford Motor Co. is set to disrupt business for months, the Wall Street Journal reported. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.2% as of 9:58 a.m. Tokyo time Japan’s Topix rose 0.4% Australia’s S&P/ASX 200 fell 0.4% Euro Stoxx 50 futures were little changed Currencies
The Bloomberg Dollar Spot Index was unchanged The euro was little changed at $1.1708 The Japanese yen was little changed at 150.49 per dollar The offshore yuan was little changed at 7.1425 per dollar Cryptocurrencies
Bitcoin fell 0.2% to $124,948.16 Ether fell 0.2% to $4,682.06 Bonds
The yield on 10-year Treasuries was little changed at 4.16% Japan’s 10-year yield advanced one basis point to 1.690% Australia’s 10-year yield advanced six basis points to 4.39% Commodities
West Texas Intermediate crude was little changed Spot gold was little changed This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rob Verdonck and John Cheng.
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