Stocks rallied across Asia after China stepped up support for its struggling property sector, heightening speculation that more aid is on the way. The yuan strengthened while the dollar dropped.
(Bloomberg) — Stocks rallied across Asia after China stepped up support for its struggling property sector, heightening speculation that more aid is on the way. The yuan strengthened while the dollar dropped.
A gauge of regional equities advanced more than 1%, halting a four-day decline, with the biggest gains in Hong Kong and Taiwan. Investors welcomed news that two Chinese regulators stepped up pressure on financial institutions to ease terms for property companies by encouraging negotiations to extend outstanding loans.
Benchmark indexes also gained in Japan, South Korea and Australia. Asian chip stocks rose after Taiwan Semiconductor Manufacturing Co. reported better-than-expected sales and their US peers climbed Monday, further buoying sentiment. US stock futures were little changed after the S&P 500 Index edged up 0.2% Monday.
The dollar weakened against all of its Group-of-10 peers, extending losses made Monday when Treasury yields declined. Government bonds gained in Australia and New Zealand. The yen advanced beyond 141 per dollar to its strongest level in more than three weeks.
Investors in Asia continue to expect more concrete steps from Beijing to bolster the nation’s tepid recovery. China’s stuttering economy is already having a wide-ranging impact on markets, with the chairman of mining giant Rio Tinto Group this week warning of knock-on effects to demand for industrial metals.
The offshore yuan extended gains into a fourth day as state-run financial newspapers in China ran reports Tuesday flagging the likely adoption of more property support policies, along with measures to boost business confidence.
“The economic recovery hasn’t come into the type of level that we expected yet,” Cecilia Chan, Asia Pacific chief investment officer at HSBC Global Asset Management, said on Bloomberg Television. “However we maintain an optimistic view with China, we know that the government will give more stimulus measures.”
Inflation Challenge
China’s economic troubles come as many other countries contend with a different issue — stubbornly high inflation and rising interest rates. In Monday’s session on Wall Street, traders sifted through remarks from a slew of Federal Reserve speakers while awaiting Wednesday’s consumer price index data that will help determine the path for rate hikes.
Fed officials Michael Barr, Mary Daly and Loretta Mester said the central bank will need to tighten further this year to bring inflation back down to the 2% goal. Morgan Stanley recommended buying five-year Treasuries on the view inflation is “likely to fall precipitously into year-end.”
“Lower CPI prints, whether it’s Wednesday in the US or whether it’s PPI on Thursday, lower prints would cause probably a rally right now in the bond market where it’s a sigh of relief to say maybe just one hike, not two,” Nancy Davis, founder and chief investment officer at Quadratic Capital Management LLC, said on Bloomberg Television.
There may be more pain on the way for the S&P 500 as profit warnings and fears of higher interest rates combine to threaten US equities, according to the latest Markets Live Pulse survey. The earnings season kicks off in earnest on Friday, when JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. report their numbers.
Morgan Stanley’s Michael Wilson became the latest to warn that earnings forecasts will matter more than usual this time around given elevated equity valuations, higher interest rates and dwindling liquidity.
Elsewhere, oil rose, while gold was little changed.
Key events this week:
- St. Louis Fed President James Bullard speaks, Tuesday
- Canada rate decision, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- US CPI, Wednesday
- Federal Reserve issues Beige Book, Wednesday
- Fed speakers include Neel Kashkari, Loretta Mester, Raphael Bostic, Wednesday
- China trade, Thursday
- Eurozone industrial production, Thursday
- US initial jobless claims, PPI, Thursday
- US University of Michigan consumer sentiment, Friday
- US banks kick off earnings, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 12:57 p.m. Tokyo time. The S&P 500 rose 0.2%
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose less than 0.1%
- Japan’s Topix index was little changed
- Hong Kong’s Hang Seng Index rose 1.5%
- China’s Shanghai Composite Index rose 0.5%
- Australia’s S&P/ASX 200 Index rose 1.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.1% to $1.1017
- The Japanese yen rose 0.3% to 140.82 per dollar
- The offshore yuan rose 0.3% to 7.2089 per dollar
- The Australian dollar rose 0.2% to $0.6688
Cryptocurrencies
- Bitcoin fell 1% to $30,484.97
- Ether fell 0.7% to $1,880
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.98%
- Japan’s 10-year yield declined 1.5 basis points to 0.450%
- Australia’s 10-year yield declined nine basis points to 4.19%
Commodities
- West Texas Intermediate crude rose 0.6% to $73.45 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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