Stocks climbed in Asia following a rebound in the final hour of New York trading as investors shifted positions ahead of a flurry of central bank decisions this week led by the Federal Reserve.
(Bloomberg) — Stocks climbed in Asia following a rebound in the final hour of New York trading as investors shifted positions ahead of a flurry of central bank decisions this week led by the Federal Reserve.
MSCI Inc.’s Asia-Pacific equity index advanced for the first time in six days, paced by tech stocks in Hong Kong, where the benchmark Hang Seng Index rose more than 1%. Japan’s Nikkei 225 earlier jumped by around the same amount after traders returned from a holiday. S&P 500 and Nasdaq 100 futures edged higher.
Treasury 10-year yields hovered near 3.5% while yields on the more policy-sensitive two-year rate hit the highest since 2007 and are poised to crack above 4%, amid fears that an overtightening of monetary settings raises the odds of a hard landing.
Investors are on tenterhooks as they await policy decisions that are expected to bring hefty rate hikes from the US, UK and Sweden. Decisions are also due in Japan, Switzerland, Indonesia, Norway and the Philippines, among others.
The dollar was little changed below recent highs, while the yen was held comfortably below the key 145 level. The yuan was on the weak side of 7 versus the dollar.
Traders are betting the Fed will hike by 75 basis points Wednesday, signal rates are heading above 4% and will then pause. The long hold strategy is rooted in the idea the central bank would avoid the disastrous stop-go policy of the 1970s that allowed inflation to get out of hand.
“We recognize that after this week’s hike the funds rate will be placed comfortably into ‘restrictive’ territory,” Kevin Cummins, the chief US economist at NatWest Markets, wrote in a note. “It seems reasonable that officials will continue to err on the side of doing too much rather than too little and keep front-loading.”
Swap contracts that forecast rates over the next two years now peak around 4.5% in March 2023 — a full point higher than was expected after the last meeting in July.
Strategists at JPMorgan Chase & Co. estimate the Fed will increase rates to 4.25% by early next year. “We expect central bank tightening and a fading of supply chain pressures to moderate job growth and core inflation. In turn, we anticipate this will allow the Fed and other central banks to pause in 1H23,” strategists including Marko Kolanovic and Nikolaos Panigirtzoglou wrote in a note on Monday.
In China, banks kept their main lending rates unchanged after the central bank paused its monetary easing and defended a weakening yuan.
In a time-tested harbinger of an economic downturn, short-term US rates have exceeded yields on longer maturities for months. The MLIV Pulse survey, which drew 737 responses, showed that the bulk of contributors expect a deeper inversion. Some see it reaching levels last seen in the early 1980s, when Paul Volcker ratcheted up borrowing costs to break the back of hyperinflation.
Elsewhere, Bitcoin struggled to return to $20,000 level. Oil slipped below $86 per barrel and gold was steady.
Will the Nasdaq 100 Stock Index hit 10,000 or 14,000 first? This week’s MLIV Pulse survey focuses on technology. It’s brief and we don’t collect your name or any contact information. Please click here to share your views.
Key events this week:
- US housing starts, Tuesday
- EIA crude oil inventory report, Wednesday
- US existing home sales, Wednesday
- Federal Reserve decision, followed by a news conference with Chair Jerome Powell, Wednesday
- Bank of Japan monetary policy decision, Thursday
- The Bank of England interest rate decision, Thursday
- US Conference Board leading index, initial jobless claims, Thursday
Some of the main moves in markets:
Stocks
- S&P 500 futures increased 0.2% as of 12:32 p.m. in Tokyo. The S&P 500 rose 0.7%
- Nasdaq 100 futures gained 0.2%. The Nasdaq 100 climbed 0.8%
- Japan’s Topix index climbed 0.3%
- South Korea’s Kospi index added 0.3%
- Hong Kong’s Hang Seng Index rose 1.3%
- China’s Shanghai Composite Index increased 0.5%
- Australia’s S&P/ASX 200 Index surged 1.2%
- Euro Stoxx 50 futures gained 0.3%
Currencies
- The Bloomberg Dollar Spot Index was steady
- The euro rose 0.1% to $1.0033
- The Japanese yen was up 0.1% to 143.15 per dollar
- The offshore yuan was at 7.0091 per dollar, down 0.1%
Bonds
- The yield on 10-year Treasuries dropped two basis points to 3.47%
- Australia’s 10-year yield fell four basis points to 3.64%
Commodities
- West Texas Intermediate crude climbed 0.1% to $85.80 a barrel
- Gold was at at $1,677.33 an ounce
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