Asian shares advanced while Treasuries jumped following comments on rates from Federal Reserve officials that fueled speculation the US central bank may stand pat until year-end.
(Bloomberg) — Asian shares advanced while Treasuries jumped following comments on rates from Federal Reserve officials that fueled speculation the US central bank may stand pat until year-end.
An Asian equity gauge jumped by the most in six weeks as benchmark indexes edged higher. Japanese stocks outperformed the region with gains of more than 2%. US stock futures also edged higher after the S&P 500 advanced 0.6% Monday. The moves come with investors still evaluating the potential impact of the Israel-Hamas conflict.
Treasuries jumped, with yields on the benchmark 10-year dropping more than 16 basis points to 4.63% Tuesday. The yield on the policy-sensitive two-year note slipped by almost 16 basis points as investors boosted bets the Fed will keep interest rates unchanged through the end of 2023. Yields on Australian and New Zealand bonds also declined.
Fed Vice Chair Philip Jefferson said officials could “proceed carefully” following the recent rise in Treasury yields, and Fed Bank of Dallas President Lorie Logan said the surge in long-term rates may mean less need for further tightening.
“Stocks are likely to be supported on the softening tone over tightening in the US and Europe,” said Hideyuki Ishiguro, senior strategist at Nomura Asset Management. “The fact that the market has not been panicking over fighting between Hamas and Israel comes as a relief for investors.”
At the end of last week, traders had boosted bets on another Fed hike this year as data showed US employment unexpectedly surged in September. That narrative switched on Monday as central bank officials tamped down speculation of another rate increase in 2023.
The dollar steadied after an earlier advance as odds for another Fed tightening eased. The offshore yuan advanced.
The tensions in the Middle East, however, may escalate further after the Financial Times reported a top US general warned Iran to “not get involved” in the Israel-Hamas conflict.
Meanwhile, oil retreated in Asia. Crude had jumped by the most in six months Monday following Hamas’ attack. Gold extended its climb into a third day.
Tough Times
The latest Middle East conflict comes at a time of ongoing geopolitical concerns, with markets also facing a period of moderating global economic growth, according to Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.
“Against this backdrop, we continue to prefer fixed income to equities,” Marcelli said. “We see a better risk-reward profile for fixed income, and we recommend investors consider buying high-quality bonds in the five- to 10-year maturity range. We foresee further cooling in inflation and slower global growth.”
The next risk to US stocks could come from fiscal policy constraints at a time when the Fed is still fighting high inflation, according to Morgan Stanley’s Michael Wilson. The strategist — among the most prominent bearish voices on Wall Street — said while the US government narrowly avoided a shutdown last week, “the lack of a resilient long-term structure that supports fiscal discipline” could have an impact on financial markets.
Key events this week:
- Bank of England releases minutes of financial policy meeting, Tuesday
- IMF issues its latest world economic outlook, Tuesday
- US wholesale inventories, Tuesday
- Fed’s Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly speak at separate events, Tuesday
- Germany CPI, Wednesday
- NATO defense ministers meeting in Brussels, Wednesday
- Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday
- US PPI, Wednesday
- Minutes of Fed’s September policy meeting, Wednesday
- Fed’s Michelle Bowman and Raphael Bostic speak at separate events, Wednesday
- Japan machinery orders, PPI, Thursday
- Bank of Japan’s Asahi Noguchi speaks, Thursday
- UK industrial production, Thursday
- US initial jobless claims, CPI, Thursday
- European Central Bank publishes account of September policy meeting, Thursday
- Fed’s Raphael Bostic speaks, Thursday
- China CPI, PPI, trade, Friday
- Eurozone industrial production, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
- G20 finance ministers and central bankers meet as part of IMF gathering, Friday
- ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
- Fed’s Patrick Harker speaks, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 11:58 a.m Tokyo time. The S&P 500 rose 0.6% on Monday
- Nasdaq 100 futures rose 0.3%. The Nasdaq 100 rose 0.5%
- Japan’s Topix rose 2.1%
- Hong Kong’s Hang Seng Index rose 1.2%
- China’s Shanghai Composite Index fell 0.5%
- Australia’s S&P/ASX 200 rose 1.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was unchanged at $1.0567
- The Japanese yen was little changed at 148.62 per dollar
- The offshore yuan rose 0.1% to 7.2824 per dollar
- The Australian dollar was little changed at $0.6413
Cryptocurrencies
- Bitcoin rose 0.4% to $27,692.85
- Ether rose 0.8% to $1,589.67
Bonds
- The yield on 10-year Treasuries declined 17 basis points to 4.63%
- Japan’s 10-year yield declined 3.5 basis points to 0.765%
- Australia’s 10-year yield declined nine basis points to 4.43%
Commodities
- West Texas Intermediate crude fell 0.3% to $86.13 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Aya Wagatsuma.
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