Gauges in Hong Kong rose as China’s factories index posted its second straight month of expansion. Futures contracts for US shares were little changed after Wall Street was bolstered by a strong start to the earnings season led by big-tech companies, despite bets the Federal Reserve will keep interest rates higher for longer. 

Japanese stocks gained following a holiday, as the yen surged back from its weakest level against the dollar in 34 years, amid suspicion the government intervened to support the currency. Shares were also boosted by rebounding factory output in a sign of improvement in the manufacturing sector.

“While investors remain cautious about the extent of currency intervention, there seems to be a sense of relief as the uncertainty around yen depreciation has receded,” said Rina Oshimo, a senior strategist at Okasan Securities Co. 

The yen swung wildly, rallying more than 2% on Monday after earlier dropping as much as 1.2% to 160.17 per dollar. That’s the widest trading range since late 2022. It trimmed some gains in early Asian trading as a Bloomberg gauge of the dollar strengthened slightly. 

Elsewhere in Asia, some traders are also looking at the possibility China will need to take an extreme and highly controversial measure to support its moribund economy — devalue the yuan in a big-bang move. Markets in the Asian powerhouse will close on Wednesday until next week for the Labour Day holidays. 

In corporates, Samsung Electronics’s earnings surged after the semiconductor business turned profitable for the first time since 2022, reflecting the global AI development boom. Japanese trading house Sumitomo shares jumped by the most since August 2020 after activist investor Elliott Management Corp. was said to have built a “large” stake in the Japanese trading house.

Elsewhere, Tesla soared 15% after receiving in-principle approval from Chinese officials to deploy its driver-assistance system in the world’s biggest car market. Apple Inc. rallied on a bullish analyst call. Boeing Co. raised $10-billion from a bond sale that attracted about $77-billion of orders.

Beating expectations

Early results from the US reporting season suggest that more than 80% of companies are beating expectations. First-quarter earnings are now on track to increase by 4.7% from a year ago, compared with the pre-season estimate of 3.8%, according to data compiled by Bloomberg Intelligence. 

US 10-year yields steadied Tuesday after falling five basis points in the previous session. The Treasury ramped up its estimate for federal borrowing for the current quarter to $243 billion, more than most dealers had anticipated. Australia and New Zealand bond yields declined early on Tuesday.

US markets could remain volatile this week, but UBS continues to see the current environment as supportive for US equities — driven by solid earnings growth, a potential Fed pivot later this year, and accelerating artificial-intelligence investment.

“We remain constructive on US equities, and expect AI-related companies to drive strong earnings growth in the years ahead,” said Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management. “It is key for investors to hold a healthy strategic allocation to tech stocks, but also advocate diversified exposure across regions and sectors.”

Despite concern that the Fed will be in no rush to cut rates, the appetite for technology stocks last week wasn’t lost on hedge funds. Tech saw the largest net buying since December 2022 by the group, driven by an increase in long positions and short-covering, data compiled by Goldman Sachs’s prime brokerage show. 

The dominance of the “Magnificent Seven” may soon give way to a broadening of earnings growth that is supportive of a variety of equity asset classes, according to Glenmede’s Jason Pride and Michael Reynolds.

In commodities, oil held its biggest drop in almost two weeks as discussions on a possible cease-fire in the Middle East reduced the risk premium for crude. Gold was little changed.