Asian equities climbed, US stock futures edged higher and the dollar declined as fears of broader contagion from the banking turmoil eased.
(Bloomberg) — Asian equities climbed, US stock futures edged higher and the dollar declined as fears of broader contagion from the banking turmoil eased.
A gauge of Asian shares climbed about 0.6%, with benchmark indexes rising in Hong Kong, Australia and Japan. European futures also gained.
Traders have been cautiously inching toward a risk-on posture as jitters in the banking sector subside. Financial firms led the way on Wall Street on Monday, while energy producers also gained. The tech-heavy Nasdaq 100 ended the session 0.7% lower, capping a two-week advance.
The two-year Treasury yield slipped back below the 4% level in Asia trading after surging 23 basis points Monday. Sentiment from the US session flowed across to trading in Australia and New Zealand, where rates on government debt climbed.
A gauge of dollar strength fell for a second day. The yen strengthened after Japan’s cabinet approved the use of some funds from the fiscal 2022 budget for measures to cushion the impact of inflation.
“As that is inflationary, it puts upwards pressure on the Bank of Japan to move away from their negative interest policy sooner than later,” said Matt Simpson, senior market analyst at City Index. “We could also be witnessing the yen repatriation trade, where large corporations move funds back to Japan ahead of the end of the fiscal year on March 31.”
Meanwhile, swaps traders priced in about a 50% probability that the Federal Reserve will lift rates by a quarter point at its next gathering. They continue to expect sharp easing thereafter, with pricing suggesting the policy rate will slide to around 4.2% in December, down from around 4.9% in May.
Not all agree.
“We see major central banks moving away from a ‘whatever it takes’ approach, stopping their hikes and entering a more nuanced phase that’s less about a relentless fight against inflation but still one where they can’t cut rates,” strategists at BlackRock Investment Institute, including Wei Li and Alex Brazier, wrote in a note.
Somes investors in the market remain on the lookout for signals of a recession later this year as the Fed and other central banks could be forced to implement higher-for-longer rate hikes to tame inflation.
JPMorgan’s chief strategist Marko Kolanovic said the first quarter “will likely mark the high point for equities this year,” recommending investors stay defensive in a research note.
“We view the most vulnerable areas as unprofitable companies that depend on steady flow of equity capital to fund operations and tight carry trades implemented over the last 10 to 20 years,” Kolanovic wrote.
One of Wall Street’s most prominent bears, Morgan Stanley strategist Michael Wilson was also cautious on stocks, saying earnings estimates and valuations need to come down.
Elsewhere in markets, Asian shares related to digital currencies fell in the wake of Bitcoin’s drop. The token fell 2.7% Monday after the US Commodity Futures Trading Commission sued Binance Holdings Ltd. for allegedly breaking trading and derivatives rules. Bitcoin dropped slightly on Tuesday.
Oil steadied after posting the biggest daily rally since October when it rose by around 5% on Monday. Gold fluctuated.
Key events this week:
- US wholesale inventories, US Conf. Board consumer confidence, Tuesday
- EIA Crude Oil Inventory Report, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- US GDP, initial jobless claims, Thursday
- Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event. Treasury Secretary Janet Yellen also speaks, Thursday
- China PMI, Friday
- Eurozone CPI, unemployment, Friday
- US consumer income, PCE deflator, University of Michigan consumer sentiment, Friday
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 1:27 p.m. Tokyo time. The S&P 500 rose 0.2%
- Nasdaq 100 futures rose 0.2%. The Nasdaq 100 fell 0.7%
- Japan’s Topix index was little changed
- Hong Kong’s Hang Seng Index rose 0.7%
- China’s Shanghai Composite Index was little changed
- Australia’s S&P/ASX 200 Index rose 1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.1% to $1.0813
- The Japanese yen rose 0.7% to 130.67 per dollar
- The offshore yuan was unchanged at 6.8828 per dollar
- The Australian dollar rose 0.6% to $0.6689
Cryptocurrencies
- Bitcoin fell 0.2% to $26,985.8
- Ether rose 0.5% to $1,716.35
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.51%
- Australia’s 10-year yield advanced 10 basis points to 3.30%
Commodities
- West Texas Intermediate crude fell 0.1% to $72.71 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott.
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