Japan is estimated to have spent almost $100 billion over a 48-hour period last week in FX intervention to support the yen — $36.6 billion on Friday, and $59 billion on Thursday. This follows a $73 billion spree in April-May this year, $36.8 billion in July 2024, $62.2 billion in April-May 2024, and $42.8 billion in October 2022.
Added together, Japan has spent around $310 billion over the past four years defending its currency. Has it worked? That's subjective. Absent that demand, the yen may well have sunk a lot lower than the 40-year low 164 per dollar recently. But we'll never know. That's a lot of dollars, and a chunk of it will have come from repo and other funding routes. But if it has prevented a much weaker and more volatile currency, Tokyo may see it as money well spent.
Global factory activity
Investors have had a few financial market wobbles to worry about recently: South Korean stocks, the global chip sector more broadly, the yen, and long-dated bonds, to name a few. But when it comes to the real economy, things have been much less volatile. If there's any background noise, it's the sound of global factories purring along rather nicely.
The latest purchasing managers index data show U.S. factory activity expanded in July at its fastest pace in over four years, euro zone output was the highest in four and a half years, and Japan's manufacturing PMI leaped to a 12-year high. There are weak spots, of course — China, India, UK — but overall, the AI capex boom is helping to keep the world's manufacturers and producers busy.
Market close and key moves
U.S. stocks rallied strongly and the Dow notched a record-high close on Monday, boosted by solid manufacturing data and optimism around earnings and U.S.-Iran peace hopes, while the yen slumped to a three-month low after a historic bout of coordinated U.S.-Japanese intervention.
Today's Key Market Moves:
Stocks: South Korea -5%, Japan -1%. Big 3 U.S. indices all +1% or more, Dow hits new high.
Sectors/shares: Eight sectors on the S&P 500 rise, three fall. Comms services +4%, consumer discretionaries +2.7%. Amazon hits $3 trillion market cap. Oracle +9%, Boeing +8%, Microsoft and Alphabet +5%, eBay -6%.
FX: Dollar/yen tumbles as low as 155.20, euro/yen below 180.00 for first time since November.
Bonds: 2-year JGB yield 1.56%, highest in 31 years; 5-year JGB yield 2.09%, highest in 30 years. U.S. yields fall 4-7 bps on oil slide.
Commodities/metals: Oil -7% to 3-week low. Gold little changed, hovering above $4,000/oz.
Wall Street resilience and earnings
The word "bouncebackability," popularized in British football parlance, describes a player or team's powers of resilience and penchant for overcoming often multiple setbacks. Wall Street is showing those characteristics, in spades, with the S&P 500 on Monday rebounding to within 0.5% of its record high and the Dow notching a fresh record-high close.
Investors are putting the recent chip rout to one side, and are taking their cue from the earnings picture, which could hardly be more bullish. The LSEG I/B/E/S Q2 annual consensus U.S. earnings growth forecast is now running at an astonishing 47.7%, virtually double what it was only a month ago.
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