Key Takeaways
- The Bank of Japan (BOJ) reported a 3.9% year-over-year contraction in the monetary base for July, indicating a tightening of liquidity, even as analysts anticipate further rate hikes in the coming months.
- Japanese 10-year JGB futures saw a significant 0.8 point jump in early trade, while Nikkei futures dropped 2.4%, signaling divergent market reactions to recent economic data and policy expectations.
- Gold prices edged lower on a likely technical correction, with analysts suggesting a potential consolidation phase after reaching all-time highs.
- Chinese copper smelters are facing a turning point, with a persistent ore shortage forcing them to consider trimming production from record levels, against a backdrop of government campaigns against overcapacity.
The global financial landscape is exhibiting heightened sensitivity to central bank policies, trade developments, and commodity market dynamics. Japan is a focal point, with the Bank of Japan's latest monetary base figures and the market's anticipation of future rate adjustments drawing significant attention.
The Bank of Japan (BOJ) announced that the monetary base in July contracted by 3.9% year-over-year, following a 3.5% decline in the previous month. The monetary base, which ended the period at ¥645.3 trillion, reflects a continued reduction in the central bank's liquidity provisions. Despite this contraction, market watchers are bringing forward their forecasts for the BOJ's next interest rate hike, with some 42% of economists surveyed by Bloomberg anticipating a move in October. This comes after the BOJ upgraded its inflation forecasts for fiscal year 2025 to 2.7% from 2.2%, signaling progress towards its inflation target. The current policy interest rate in Japan stands at 0.50%.
In bond markets, Japanese 10-year JGB futures experienced a notable 0.8 point jump in early trading. Conversely, Japan's Nikkei futures dropped 2.4% in early trade, indicating a bearish sentiment in the equity market. This divergence suggests that while bond investors may be pricing in a more hawkish BOJ, equity markets are reacting to broader concerns, including global trade uncertainties.
Gold prices saw a slight decline, attributed to a likely technical correction. Analysts suggest that gold has reached its measured move target around $3,000 and is showing signs of technical overextension, although a lack of extreme euphoria indicates a mature bull market rather than a speculative bubble. Support levels for gold are identified around $2,300 and potentially $2,250, with resistance at $2,450. The broader-term outlook for gold remains strongly bullish, with expectations of a bottom forming near key support levels for a potential upward move by the end of 2025.
Meanwhile, China's copper smelters are at a critical juncture due to a persistent shortage of ore, which is forcing them to consider trimming production from record levels. This situation is exacerbated by the Chinese government's intensified campaign against overcapacity across various industries. The imbalance between mine supply and smelting capacity has significantly squeezed profit margins for smelters, with processing fees (treatment charges) collapsing to near zero in the spot market. This move to cut output could provide support for copper prices, with Citi analysts forecasting global copper market deficits of 207,000 metric tons in 2024 and 215,000 tons in 2025, potentially pushing average copper prices to $9,125 a ton this year and $10,250 in 2025.
Broader Asia-Pacific stock markets are set to slip as investors weigh the impact of tariffs and a recent OPEC+ output hike. Fresh confusion over US tariff policy and a larger-than-expected production increase by OPEC+ have contributed to a cautious sentiment across Asian markets. Japanese shares shed 0.3%, South Korea's KOSPI declined 0.7%, and MSCI's broadest index of Asia-Pacific shares outside Japan edged down 0.1%. US stock futures were also under pressure, with S&P 500 and Nasdaq futures falling 0.3% each.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.