Asian stocks rallied as cooling US inflation strengthened the view that the Federal Reserve’s monetary tightening cycle is nearing an end. The dollar and Treasury yields extended declines.
(Bloomberg) — Asian stocks rallied as cooling US inflation strengthened the view that the Federal Reserve’s monetary tightening cycle is nearing an end. The dollar and Treasury yields extended declines.
An Asian share gauge headed for the highest close in more than three weeks, supported by gains in Hong Kong, Australia and Japan. Sony Group Corp. climbed more than 5% in Tokyo after Goldman Sachs Group Inc. upgraded its recommendation to buy from neutral. US stock futures rose.
Technology stocks in Hong Kong rallied for a fourth day after Chinese Premier Li Qiang met with senior executives from the country’s leading technology firms on Wednesday. The news added to optimism the government is ending its crackdown on the industry amid a weakening economy.
A gauge of the dollar added to Wednesday’s 0.9% drop to fall to the lowest in over a year. The yen was little changed after surging 1.3% versus the dollar the previous day. Emerging market currencies rallied, with the South Korean won leading the gains.
The yuan is steady, after data showed that China’s exports fell for a second straight month in June. With imports also down, the weak trade data may reinforce calls for more policy support for the economy.
Some top money managers said the greenback is poised for further losses as US exceptionalism wanes.
“The recent USD underperformance reflects a qualitative shift in market comfort with being short USD as the terminal Fed policy rate looks increasingly capped,” Steven Englander, head of global G-10 FX research and North America strategy for Standard Chartered Bank, wrote in a note.
Treasury yields extended declines in Asian hours. The yield on two-year Treasuries, which is more sensitive to imminent policy moves, dropped around four basis points to 4.71% after sliding 13 basis points Wednesday on the inflation data.
Australia’s three-year yields declined 10 basis points. New Zealand’s government bond yields also fell.
Receding Likelihood
The US consumer price index slid to 3% in June year-on-year, down from 4% in May. The core measure — which economists view as the better indicator of underlying inflation — dropped to 4.8%, the lowest since 2021. While traders predict the Federal Reserve will still go ahead with one more rate hike this month, the likelihood of further increases appears to be receding.
The inflation data propelled the S&P 500 to its highest close since April 2022. The tech-heavy Nasdaq 100 outperformed, jumping 1.2%.
Brandywine Global Investment Management expects the Fed to tighten by 25 basis points this month and then pause. “We’ve moved beyond that sort of crisis mentality around inflation,” portfolio manager Jack McIntyre told Bloomberg Television. “The rhetoric coming from the Fed post-FOMC should be a lot less hawkish.”
Elsewhere, oil ticked higher on optimism that the Fed’s rate hike cycle is nearing an end. Gold was little changed.
Key events this week:
- 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 move in markets:
Stocks
- S&P 500 futures rose 0.2% as of 12:45 p.m. Tokyo time. The S&P 500 rose 0.7%
- Nasdaq 100 futures rose 0.3%. The Nasdaq 100 rose 1.2%
- Japan’s Topix index rose 1.1%
- Hong Kong’s Hang Seng Index rose 2.5%
- China’s Shanghai Composite Index rose 0.9%
- Australia’s S&P/ASX 200 Index rose 1.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.1% to $1.1145
- The Japanese yen was little changed at 138.43 per dollar
- The offshore yuan was little changed at 7.1722 per dollar
- The Australian dollar rose 0.4% to $0.6811
Cryptocurrencies
- Bitcoin fell 0.2% to $30,295.87
- Ether fell 0.3% to $1,867.01
Bonds
- The yield on 10-year Treasuries was little changed at 3.86%
- Japan’s 10-year yield declined one basis point to 0.465%
- Australia’s 10-year yield declined seven basis points to 4.06%
Commodities
- West Texas Intermediate crude rose 0.4% to $76.09 a barrel
- Spot gold rose 0.2% to $1,960.64 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Ruth Carson.
More stories like this are available on bloomberg.com
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