A woman points to an electronic board showing stock prices as she poses in front of the board after the New Year opening ceremony at the Tokyo Stock Exchange (TSE), held to wish for the success of Japan’s stock market, in Tokyo

World markets have rallied strongly from days of instability, thanks in part to Bank of Japan practically apologizing on Wednesday for its involvement in the uproar. Now traders try to figure out what’s next.
Japanese stock index Nikkei returned to Friday’s closing at one point earlier, completing a near 5,000-point, 12% roundabout in three days and finishing Wednesday 1% higher.

As volatility gauges fell back to long-term averages, the BoJ’s influential deputy governor Shinichi Uchida said the market recovery may force the central bank to hold back after last week’s interest rate rise and promise of more.
“As we’re seeing sharp volatility in domestic and overseas financial markets, it’s necessary to maintain current levels of monetary easing for the time being,” Uchida told Hakodate business leaders.

Over the previous week, the BoJ decision seemed to deflate a half trillion dollar yen-funded currency ‘carry trade’, sending the currency higher. According to JPMorgan, two-thirds of the short yen holdings may have been unwound.
The dollar/yen exchange rate has recovered 4% from Monday’s 7-month low to above 147.
The VIX ‘fear index’ of U.S. stock market volatility is back to 23 – almost a third of Monday’s peak and closer to its historic average of 19.3.
All major index futures are up more than 1% ahead of the bell, indicating that Wall Street’s comeback will continue later today.
If global economic worries caused the market wobble last week, July Chinese trade statistics helped calm things down. Chinese imports exceeded estimates despite export growth missing.

Focus returns to earnings season fundamentals and supercharged Federal Reserve rate cut bets.
Super Micro Computer’s miss overnight may keep tech investors nervous if overpriced tech stocks and a revaluation of artificial intelligence were other causes of last week’s turmoil.
As expenses rose to produce servers using the latest AI chips, Super Micro’s gross margins fell below expectations and its shares fell 14%.
AI leader Nvidia was up 1.5% in pre-market trade on Wednesday.
Overall, second-quarter earnings are strong. LSEG data shows 13.7% annual S&P500 profit growth, two points above than pre-season projections.
Even with the tech wobble, there are significant winners. Uber earnings surpassed Wall Street projections on Tuesday due to consistent demand for its ride-sharing and food-delivery services, raising its shares 5%.
The Fed’s view on interest rates has softened because to stock market stabilization.
The futures market still prices 41 basis points of cuts next month, and more than 100bps are still possible by yearend.
Tuesday’s $58 billion three-year Treasury auction went well, and $42 billion of benchmark 10-year is auctioned later today.
Treasury is acquiring 10-year funding 20bp cheaper than last week’s auction at 3.93%.
Given the recent labor market anxiety, tomorrow’s unemployment claims report may be a focus for recession anxieties.
Most investors expect a’soft landing’ and increased Fed rate reduction will support that.
Stephen Dover of Franklin Templeton Institute notes that the average one-year stock market return after the first Fed rate drop is almost 5% even when a recession occurs, but 16.6% when the cuts occur without a recession.
After a sub-forecast sales update for its popular weight-loss medicine Wegovy, Novo Nordisk lowered its full-year profit expectation in Europe, raising investor concerns about Eli Lilly’s increased rivalry.