Yen stability leads Nikkei higher ahead of Reuters US data test

A look at the day ahead in European and global markets from Ankur Banerjee

Japanese shares returned from a holiday on Tuesday, erasing all of last week’s losses as a steady yen provided relief to cautious investors, with a flurry of US data this week set to sharpen market views on the next move of Fed.

US producer price data is available later in the day and is likely to weigh on markets before attention turns to July consumer price index data due on Wednesday. Thursday’s retail sales report rounds out this week’s data warehouse.

Investors will be looking at the data set to gauge whether the Federal Reserve will opt for a 50 basis point cut or a 25 bps cut at its September meeting. Traders are currently evenly split between the two, CME’s FedWatch tool showed.

At one point last week, prices were off 50 bps during the sell-off triggered by US recession fears.

That left traders hesitant to place big bets ahead of the data, although it drew attention in an otherwise lackluster Asian session as a steady yen calmed investors’ nerves after last week’s sharp swings.

The more than 2 percent rise in Japanese shares means they have returned to levels last seen on August 2. What market crash?

The yen, the other epicenter of last week’s steep selloff, was slightly weaker at 147.435 per dollar, far from the seven-month high of 141.675 it hit on Monday last week.

Many of the yen’s moves in recent trading days have been halted, allowing some semblance of calm to return to the market and leaving investors to wonder if the carry trade is over for now.

Investors will also be watching for comments from Federal Reserve Bank of Atlanta President Raphael Bostic, who is due to speak later in the day, while European hours are likely to be dominated by UK wages data.

Meanwhile, those who showed up for Republican presidential candidate Donald Trump’s interview with billionaire entrepreneur Elon Musk had to wait a while before the session began due to a lengthy delay caused by technical issues that prevented many users from to access the live stream.

Key developments that could influence markets on Tuesday:

UK wages data for June, UK ILO unemployment rate for June, German ZEW economic survey and current conditions for August

(By Ankur Banerjee; Editing by Muralikumar Anantharaman)