Asian markets edged up toward a 16-month high on Tuesday, while oil prices remained near recent peaks as investors found more reasons for optimism about the global economic outlook than concerns, despite data signaling risks still exist.
 
The dollar reached a three-week high against the yen as investors awaited clarity on the Bank of Japan’s latest adjustments to yield curve control and their impact on monetary policy.
 
The Australian dollar, meanwhile, dipped slightly ahead of the central bank’s policy decision, with traders assigning about a 30% chance of a quarter-point rate hike.
 
MSCI's index of Asia-Pacific shares (.MIAP00000PUS) rose by 0.25%, returning to the previous day's high—the strongest level since the previous April.
 
The Hang Seng gained 0.84%, with the tech subindex up nearly 2%. Japan's Nikkei rose 0.59%.
 
U.S. E-mini futures signaled a 0.1% rise after the S&P 500 closed up 0.15% the previous day.
 
Signs of rising inflation in Europe on Monday mirrored the situation in the U.S., adding evidence that major central banks may be nearing the end of their tightening cycles.
 
Despite a surprising contraction in China’s manufacturing sector according to a private survey released Tuesday, investors largely overlooked it, focusing instead on Beijing’s stimulus measures supporting post-pandemic recovery.
 
“We are in a remarkable economic environment, with a very strong economy, robust earnings reports, and low inflation,” said Tony Sycamore, a market analyst at IG in Sydney.
 
“More than half the year is over, and we feel in a very good place.”
 
However, this positive narrative faces key tests this week, particularly with closely watched U.S. jobs reports, including Friday's monthly payrolls data, and earnings reports from global companies like Caterpillar due Tuesday.
 
The U.S. dollar index, which measures the currency against six major peers, rose 0.2% to 102.07, the highest level since July 10.
 
This strength was driven by further yen weakening, as investors largely ignored the Bank of Japan's unexpected adjustment to the cap on 10-year Japanese government bond yields. They focused instead on the prospect of any changes to short-term negative interest rates, which is seen as a distant likelihood.
 
The dollar also gained 0.37%, hitting a three-week high against the yen at 142.80 yen.
 
Japan’s 10-year benchmark government bond yield (JP10YTN=JBTC) was around 0.6%, far from the newly established de facto cap of 1%.
 
The Australian dollar (Aussie) fell 0.34% to $0.66955, placing it in the middle of the previous week's trading range.
 
Bitcoin, the leading cryptocurrency, dropped 0.9% to $28,965, earlier touching a low of $28,726, its lowest since June 21.
 
Crude oil prices edged down after ending July at a three-month high, supported by signs of tightening global supply and increasing demand through the rest of the year.
 
U.S. West Texas Intermediate (WTI) crude futures slipped 0.3% to $81.54 per barrel, after reaching $82.00 in the previous session for the first time since mid-April.
 
 
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