Asian markets rallied hard with Wall Street on Friday as South Korea's battered market made a record comeback, stirring hopes that a recent rout in AI-related stocks had run out of steam.
The yen was also in the spotlight, holding some distance away from a 40-year trough after suspected coordinated intervention by various authorities in the previous session, as the Bank of Japan (BOJ) stood pat on rates on Friday.
Long-end U.S. Treasury yields held near 19-year highs while short-end yields eased, steepening the curve as doubts grow over the Federal Reserve's ability to anchor inflation expectations.
South Korea's benchmark KOSPI (.KS11) leapt 17%, reversing steep losses from earlier in the week. Japan's Nikkei (.N225) similarly advanced nearly 4% and MSCI's broadest index of Asia-Pacific shares outside Japan (.MISX00000PUS) rose 6%.
That followed surges in AI heavyweights Microsoft (MSFT.O) and Amazon (AMZN.O) on Thursday, lifting chip stocks broadly after upbeat earnings and forecasts from both eased concerns over hefty capital spending.
"Both the earnings as well as the sentiment are kind of coming back a bit after the really over-exaggerated move in the earlier part of the week," said Fabien Yip, a market analyst at IG.
"The AI demand story didn't really decelerate, it seems like it's still sustainable. So the selloff that we saw ... is maybe the market overreacting to some of those concerns around (capex spending)."
Despite Friday's turnaround, the KOSPI was still set to lose more than 22% in July, on track for its largest monthly loss since 2008.
The wild market swings prompted South Korean authorities to rein in the leveraged products that have wreaked havoc and wiped out the savings of some retail investors.
"Clients are asking whether hyperscalers will maintain current capex plans and whether AI adoption will translate into meaningful revenues and productivity gains," said Jacky Tang, Deutsche Bank's Private Bank emerging markets chief investment officer.
"Our view is that the correction reflects a reset in expectations after an exceptional rally, rather than a material weakening of the underlying investment case."
Nasdaq futures were up more than 1% and S&P 500 futures added 0.46%. In Europe, EUROSTOXX 50 futures advanced 0.8%, while FTSE futures and DAX futures rose 0.47% and 0.6%, respectively.
Chinese markets followed suit. The CSI AI index (.CSI930713) and Shanghai's tech-focused STAR Composite Index (.CSI000680) gained more than 5% each.
BOJ STANDS PAT ON RATES
The yen was roughly 0.7% weaker at 160.66 per dollar, briefly slipping after the BOJ kept rates on hold on Friday, with focus now on BOJ Governor Kazuo Ueda's press conference later in the day.
"The upward revision to growth, combined with the acknowledgement of upside inflation risks and the first-ever recognition that underlying inflation could overshoot the target, makes this a hawkish hold," said Junyu Tan, North Asia economist at Coface.
"However, there were few signals suggesting a shift in the gradual six-month per hike path or next rate hike earlier than December, prompting markets to unwind some of the intervention-driven gains."
The yen had already been sliding prior to the decision, as traders tested Tokyo's resolve after Japan was suspected to have intervened in the foreign exchange market in New York hours on Thursday, leading to a 2.4% surge in the currency.
In a rare move, South Korea's foreign exchange authorities also conducted dollar-selling intervention on Thursday, while the Nikkei reported that U.S. authorities also conducted so-called "rate checks", pointing to a possible joint intervention.
A trader, who declined to be named because they were not authorised to speak to the media, said dollar/yen liquidity was thin on Friday due to nerves over further action from authorities.
The latest bout of strength in the yen in turn kept pressure on the dollar, leaving the euro perched near an over one-month high at $1.1509, while sterling bought $1.3446, holding to most of Thursday's 0.7% gain.
MIDDLE EAST UNCERTAINTY LINGERS
Oil prices fell on Friday, as more supplies flowed through crucial maritime chokepoints, despite a lack of major breakthroughs in talks between the United States and Iran.
Brent crude futures were down 2% at $87.16 a barrel, while U.S. crude dropped 2.7% to $81.38 a barrel.
"The striking feature of the market reaction is that energy prices did not panic despite the deterioration in the conflict," said Rodrigo Catril, senior FX strategist at National Australia Bank.
Elsewhere, spot gold eased 0.6% to $4,077.47 an ounce.
