An index of Asian equities rose for a fourth day amid bets for supportive monetary policy from central banks in China and Japan and a pause in interest rate hikes from the Federal Reserve.
(Bloomberg) — An index of Asian equities rose for a fourth day amid bets for supportive monetary policy from central banks in China and Japan and a pause in interest rate hikes from the Federal Reserve.
Japan’s Topix rallied about 1% as it extended its three-decade high. Australia’s benchmark gauge also advanced. Shares in Hong Kong and Shanghai fluctuated, reflecting debate over how much stimulus can do to truly reinvigorate the Chinese economy.
The gains in Asia also follow the S&P 500’s fourth consecutive increase — its longest winning run since early April. It is approaching the 4,400 mark, a level it hasn’t traded at for more than a year.
Global investors embraced a slowdown in US inflation data Tuesday as confirmation that the Fed will hold rates in the 5%-5.25% range later Wednesday. Swap traders put the odds of an increase at only 10%, while still seeing the potential for a July move.
Wall Street’s “fear gauge” — the Cboe Volatility Index — dropped back below 15, versus an average of 23 for the past year, underscoring support for risk assets.
The upbeat response to the Fed’s likely pause Wednesday was coupled with a shift in views for outlook later in the year. This was reflected in short-term Treasury yields surging Tuesday to the highest levels since March amid a decline in expectations that the policymakers will cut interest rates in 2023. Two-year rates, which are more sensitive to imminent policy moves, climbed nine basis points to 4.67%.
Treasury yields fell slightly Wednesday while yields in Australia and New Zealand followed the moves higher from the previous US session.
An index of dollar strength was little changed amid subdued trading in currency markets.
The Fed’s pause will be conditional as it assesses data and investors will need to remain vigilant, said Kristina Hooper, chief global market strategist at Invesco.
“What we are seeing right now is an imperfect disinflationary environment,” she said on Bloomberg Television. “Having that sword of Damocles hanging over markets is important, suggesting that another rate hike could happen at any meeting.”
Both the consumer price index and the core CPI — which excludes food and energy — decelerated on an annual basis, highlighting inflation’s descent since peaking last year. At 4%, year-over-year inflation is now at its lowest level since March 2021. That said, a key gauge of prices closely watched by the Fed continued to rise at a concerning pace.
Meanwhile in Asia, the People’s Bank of China is projected to cut its medium-term lending facility rate on Thursday, while the Bank of Japan is expected to keep its ultra-easy policy unchanged Friday.
Elsewhere in markets, oil edged lower Wednesday after rebounding by more than 3% Tuesday from a three-month low.
Gold and Bitcoin were slightly higher.
Key events this week:
- Eurozone industrial production, Wednesday
- US PPI, Wednesday
- Federal Reserve rate decision, updated economic forecasts, Jerome Powell’s press conference, Wednesday
- IEA oil market report, Wednesday
- China property prices, retail sales, industrial production, Thursday
- European Central Bank President Christine Lagarde holds press conference following the rate decision, Thursday
- US initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, Thursday
- Bank of Japan rate decision, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 12:04 p.m. Tokyo time. The S&P 500 rose 0.7%
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.8%
- Japan’s Topix rose 0.9%
- Australia’s S&P/ASX 200 rose 0.4%
- Hong Kong’s Hang Seng fell 0.1%
- The Shanghai Composite was little changed
- Euro Stoxx 50 futures fell 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0794
- The Japanese yen rose 0.1% to 140.07 per dollar
- The offshore yuan was little changed at 7.1724 per dollar
- The Australian dollar rose 0.1% to $0.6775
Cryptocurrencies
- Bitcoin rose 0.5% to $25,974.14
- Ether rose 0.3% to $1,744
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.80%
- Japan’s 10-year yield advanced 1.5 basis points to 0.430%
- Australia’s 10-year yield advanced five basis points to 3.98%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold rose 0.2% to $1,947.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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