Stocks in Asia and US equity futures extended their gains as weak US manufacturing data eased bets on the Federal Reserve’s hawkishness. The Australian dollar dropped after the nation’s central bank delivered a smaller-than-expected rate hike.
(Bloomberg) — Stocks in Asia and US equity futures extended their gains as weak US manufacturing data eased bets on the Federal Reserve’s hawkishness. The Australian dollar dropped after the nation’s central bank delivered a smaller-than-expected rate hike.
An Asia Pacific equity benchmark rose by more than 1.6% and is on course for the highest in a week, sparked by a broad rebound in the region, with investors appearing to shrug off news that North Korea fired a missile over Japan for the first time since 2017.
Treasuries consolidated following a rally on Monday after a US manufacturing gauge declined more than expected, tamping down fears of more aggressive Fed’s moves. The Bloomberg Dollar Spot Index turned flat after a 0.5% decline on Monday.
The Reserve Bank of Australia raised its benchmark interest rate by 25 basis points, less than expected. Australian three-year yields dropped as much as 58 basis points after the decision, while the currency tumbled as much as 1%.
Read more: Wall Street Capitulation Calls Get Ever Harder as Stocks Bounce
Traders pared bets on Fed hikes, with swaps tied to Fed policy meeting dates falling sharply for early 2023. The May meeting contract’s rate dropped, suggesting a peak policy rate of 4.48% next year, down from recent highs above 4.69%.
In the latest sign the Fed’s five rate hikes totaling 3 percentage points may be taking their toll, the Institute for Supply Management’s gauge of factory activity fell to a more than two-year low. The Fed should consider stopping its tightening campaign after one more interest-rate hike in November, according to Ed Yardeni, a market veteran who coined terms like “Fed Model” and “bond vigilante.”
Fed speakers continued the drumbeat over rate hikes. New York Fed President John Williams said the US central bank has yet to raise interest rates to levels that are restricting economic growth, and tightening still has “significant” ways to go.
“I think we’ve underestimated the pain of the stall out,” Nicole Webb, SVP and financial advisor at Wealth Enhancement Group, said on Bloomberg Television. “At some point the Fed does stop raising but however how long they hold us or suspend us there is still in question.”
China’s onshore markets will remain shut this week for holidays, while the Hong Kong exchange will be closed Tuesday for the Chung Yeung Festival.
Elsewhere, oil steadied after posting the biggest one-day gain since May as the market looked to OPEC+ to deliver a substantial cut in supply.
Brazilian assets soared after President Jair Bolsonaro secured his way to a runoff election against Luiz Inacio Lula da Silva as investors cheered on the incumbent’s better-than-expected showing and bet his leftist challenger will be forced to moderate his stances in the second stretch of the race. The real was the best-performing among the world’s major currencies Monday.
Key events this week:
- Eurozone PPI, Tuesday
- US factory orders, durable goods, Tuesday
- Fed’s John Williams, Lorie Logan, Loretta Mester, Mary Daly speak at events, Tuesday
- Eurozone services PMIs, Wednesday
- OPEC+ meeting begins, Wednesday
- Fed’s Raphael Bostic speaks, Wednesday
- The Reserve Bank of New Zealand meets, Wednesday
- Eurozone retail sales, Thursday
- US initial jobless claims, Thursday
- Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
- US unemployment, wholesale inventories, nonfarm payrolls, Friday
- BOE Deputy Governor Dave Ramsden speaks at event, Friday
- Fed’s John Williams speaks at event, Friday
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Some of the main moves in markets:
Stocks
- S&P 500 futures added 0.7% as of 12:33 p.m. Tokyo time. S&P 500 Index rose 2.6%
- Nasdaq 100 futures climbed 0.8%. Nasdaq 100 Index rose 2.4%
- Japan’s Topix index rose 2.9%
- South Korea’s Kospi index surged 2.2%
- Australia’s S&P/ASX 200 Index gained 3.3%
Currencies
- The Bloomberg Dollar Spot Index was steady
- The euro was up 0.1% to 0.9834 per dollar
- The Japanese yen slid 0.2% to 144.85 per dollar
- The offshore yuan was at 7.1089 per dollar
- The British pound weakened 0.1% to 1.1313 per dollar
Bonds
- The yield on 10-year Treasuries fell nearly two basis points to 3.62%
- Australia’s 10-year yield dropped almost 25 basis points to 3.65%
Cryptocurrencies
- Bitcoin was at $19,586
- Ether climbed 0.2% to $1,326
Commodities
- West Texas Intermediate crude surged 0.2% to $83.80 a barrel
- Gold fell 0.1% to $1,697.82 per ounce
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