A mildly positive tone for risk taking returned to Asian equity markets Tuesday as immediate concerns over the strength of the global financial system dissipated.
(Bloomberg) — A mildly positive tone for risk taking returned to Asian equity markets Tuesday as immediate concerns over the strength of the global financial system dissipated.
A benchmark of the region’s stocks gained about 0.5% as shares rose in Hong Kong, South Korea and Australia. Most sectors rose, with financial stocks outpacing the broader gauge.
Futures for the S&P 500 were slightly higher following a jump of 0.9% Monday in the underlying index. News that US officials were studying ways to temporarily guarantee all bank deposits if the current financial crisis expands sent contracts for the S&P 500 and the Nasdaq 100 to their intraday highs.
Also supporting sentiment during the Asian session was a rebound in Additional Tier 1 bonds sold by banks in the Asia-Pacific region.
The dollar steadied and was set to end a three-day losing streak, which sent a measure of the greenback’s strength to a month-low on Monday. That came as expectations grew that the Federal Reserve may adapt a more cautious policy approach when it decides on interest rates Wednesday.
Government bond yields were lower in Australia and New Zealand after Treasuries whipsawed through the global trading day on Monday. Board minutes showing that Australia’s central bank would consider a pause in rate hikes next month weighed on the nation’s yields and the Australian dollar.
The policy-sensitive two-year US Treasury yield ended Monday 14 basis points higher and just below 4%. There was no trading of cash Treasuries in Asia hours Tuesday with a holiday in Japan.
Investors are closely monitoring the Fed’s meeting and have increased bets on a quarter-point hike as the recent financial turmoil has spurred speculation on a slower pace of tightening from major central banks worldwide.
Just a couple of weeks ago, investors were betting it would raise rates close to 6% and that the European Central Bank would hike past 4%. Now markets imply the tightening cycles are almost over and wager on multiple rate cuts in the US by year-end.
Swap traders currently see the Fed’s benchmark ending the year around 4% — a whole percentage point below the central bank’s rate estimate in the December “dot plot” that comes as part of the quarterly economic projections.
“Further rate hikes are no longer warranted, in our opinion”, Ed Yardeni, president of Yardeni Research Inc., wrote in a note. Fed Chair Jerome Powell will have to acknowledge that “the crisis confirms that interest rates are sufficiently restrictive and that financial conditions are rapidly getting tighter,” he said.
The Fed can take a pause in this week’s meeting to help banks without having to worry over being seen to have blinked, said Erin Gibbs, chief investment officer at Main Street Asset Management.
“I don’t think it’s going to give the impression that they’re done. I mean, we know that we still have over 6% inflation in the US. We know that those rate hikes should be coming if we don’t see those decreases,” she said on Bloomberg Television.
Elsewhere, oil fell after a turbulent session even as a calmer tone returned to the market. Gold edged higher.
Key events this week:
- US existing home sales, Tuesday
- US Treasury Secretary Janet Yellen to appear at Senate subcommittee hearing, Wednesday
- FOMC rate decision, news conference from Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Eurozone consumer confidence, Thursday
- BOE interest rate decision, Thursday
- Swiss National Bank rate decision and press conference, Thursday
- US new home sales, initial jobless claims, Thursday
- US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 12:17 p.m. Tokyo time. The S&P 500 rose 0.9% on Monday
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.3%
- South Korea’s Kospi index rose 0.3%
- Hong Kong’s Hang Seng Index rose 0.3%
- China’s Shanghai Composite Index rose 0.1%
- Australia’s S&P/ASX 200 Index rose 1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0711
- The Japanese yen was little changed at 131.38 per dollar
- The offshore yuan fell 0.1% to 6.8828 per dollar
- The Australian dollar fell 0.4% to $0.6689
Cryptocurrencies
- Bitcoin fell 0.4% to $27,960.5
- Ether fell 0.4% to $1,754.02
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.48% on Monday
- Australia’s 10-year yield declined three basis points to 3.21%
Commodities
- West Texas Intermediate crude fell 1.1% to $66.90 a barrel
- Spot gold rose 0.2% to $1,982.41 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth and Jason Scott.
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