A gauge of global stocks was set to snap a three-week run of losses as investors weigh the negative impact of higher interest rates against positive growth signs from China’s economy.
(Bloomberg) — A gauge of global stocks was set to snap a three-week run of losses as investors weigh the negative impact of higher interest rates against positive growth signs from China’s economy.
Asian equities rose about 1%, led higher by gains in Hong Kong and Tokyo on Friday, as they built on an advance in the US on Thursday when the S&P 500 jumped the most in more than two weeks. Contracts for US equities fell slightly while those for Europe rose about 0.5%.
Sentiment in the share market was also supported by comments from Federal Reserve Bank of Atlanta President Raphael Bostic that the central bank could be in a position to pause in hiking borrowing costs sometime this summer. Investors in rates markets continued to focus on inflation risks and more hawkish remarks from other Fed officials.
Treasury yields were fractionally lower on Friday after moving higher across the curve in the US session, when the 30-year rate followed the 10-year maturity in piercing 4%. The policy-sensitive two-year rate was about 10 basis points below the 5% level.
Japan’s benchmark yield climbed back above the central bank’s 0.5% ceiling, before later dropping back, as traders tested policymakers before next week’s key meeting. The BOJ is said to be leaning toward monitoring the impact of recent tweaks to its stimulus program rather than making another adjustment at Governor Haruhiko Kuroda’s final gathering, according to people familiar with the matter.
The dollar dropped as a gauge of the currency’s strength headed for its first weekly loss since January. The decline came as stronger-than-expected Caixin China PMI data bolstered investor demand for risk assets. The offshore yuan and the yen rose.
The comments from Bostic, who is not a voting member in Fed policy decisions this year, were seen as dovish by some investors, while other officials in recent days have reinforced their hawkish rhetoric. After the US market closed, Federal Reserve Governor Christopher Waller said that he’d favor raising interest rates even more than his current outlook if economic indicators continue to come in hotter than expected.
The focus now is on how much higher interest rates might go in the US and Europe, with swaps markets now pricing a peak Fed policy rate of 5.5% in September, and some traders even betting that the benchmark interest rate could rise to 6%.
“We think the Fed will roughly end between 5.25% and 5.75%. I think that’s restrictive enough,” Priya Misra, global head of rates strategy at TD Securities, said on Bloomberg Television. “But I think that there is a cohort of investors who think the Fed may have to hike a lot more and that’s why interest rates are rising as much as they have recently.”
TD Securities expects risk assets to struggle as the Fed achieves its goal of slowing the economy through rate hikes and owning long Treasuries will then be an attractive longer-term play.
Traders are also waiting to see potential triggers for risk sentiment from China’s annual gathering of the National People’s Congress, which begins Sunday.
“We don’t expect very positive outcomes on the growth side, but you could see better communication in terms of reforms, in terms of regulations, and that could also help drive earnings upside in China,” Mixo Das, Asia equity strategist at JPMorgan Chase & Co., said on Bloomberg Television.
Earlier Friday, the country’s central bank Governor Yi Gang signaled monetary policy will largely be stable this year, saying interest rates in the economy are appropriate.
In other markets, Bitcoin fell to the lowest level in more than two weeks on wider retreat in the crypto markets as investors assessed the fallout of crypto-friendly US bank Silvergate Capital Corp.
Oil was lower but headed for a first weekly gain in three weeks as optimism over China’s recovery offset persistent concerns on tighter US monetary policy. Gold climbed and was poised for the best week since mid January.
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.1% as of 6:30 a.m. London time. The S&P 500 rose 0.8%
- Nasdaq 100 futures fell 0.2%. The Nasdaq 100 rose 0.9%
- Euro Stoxx 50 futures rose 0.5%
- Japan’s Topix index rose 1.3%
- Hong Kong’s Hang Seng Index rose 1.3%
- China’s Shanghai Composite Index rose 0.5%
- Australia’s S&P/ASX 200 Index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.0616
- The Japanese yen rose 0.2% to 136.48 per dollar
- The offshore yuan rose 0.2% to 6.9047 per dollar
- The Australian dollar rose 0.3% to $0.6750
- The British pound rose 0.2% to $1.1975
Cryptocurrencies
- Bitcoin fell 4.3% to $22,405.55
- Ether fell 4.3% to $1,570.09
Bonds
- The yield on 10-year Treasuries declined two basis points to 4.03%
- Japan’s 10-year yield was steady at 0.5%
- Australia’s 10-year yield advanced four basis points to 3.90%
Commodities
- West Texas Intermediate crude fell 0.1% to $78.05 a barrel
- Spot gold rose 0.4% to $1,842.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rob Verdonck.
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