Early Asia wrap: Awaiting economic and corporate America “truth bombs”

Asian stocks held steady on Tuesday as investors braced for a flood of key earnings reports in the coming days. Japanese markets, meanwhile, continued their rally as a weakened yen seemed to favour Tokyo. Yet the question looms: How much yen weakness is actually beneficial? With oil prices retreating and the BoJ likely to stay on the fence well into 2025 amid political turbulence, this provides a temporary sweet spot for Japanese equities.

Most regional markets failed to capitalize on Wall Street’s mild gains. U.S. stocks edged higher on hopes that tensions in the Middle East wouldn’t escalate. However, Wall Street futures are treading water in Asia as traders pin their hopes on tech earnings to stoke a year-end rally amid soaring yields and stretched equity valuations.

Yet, where most of the market feels the squeeze, the mega-cap AI “hyperscalers” like Microsoft, Amazon, Alphabet, and Meta seem well-prepared. Loaded with cash reserves that would make a central banker envious, they locked in long-term financing at rock-bottom rates. BofA Global Research reports that these giants are ramping up capital expenditures by 40% this year, while capex for the rest of the S&P 500 is projected to dip by 1% in 2024. These cash-heavy balance sheets even welcome higher rates, offering a rare layer of defence against broader market jitters.

But pre-election economic data surprises—particularly on the jobs or inflation front—could throw a wrench into this scenario as the Nov. 5 election inches closer. For now, investors are bracing for increased volatility, knowing that liquidity challenges may require swift exits from positions if markets turn thin, potentially with sharp price impacts. Buckle up—things are about to get very interesting.