Asian stocks are set to climb in early trading after US equities had their best day in more than a month on Friday as traders speculate that an unexpected contraction in services activity and a slowdown in wage growth will temper the Federal Reserve’s rate hike aggression.
(Bloomberg) — Asian stocks are set to climb in early trading after US equities had their best day in more than a month on Friday as traders speculate that an unexpected contraction in services activity and a slowdown in wage growth will temper the Federal Reserve’s rate hike aggression.
Australian stock futures rose about 1% Friday while contracts for Hong Kong equities climbed 1.5%. Japanese markets are closed Monday for a public holiday. The S&P 500 jumped more than 2% Friday to salvage the first weekly advance in the past five. Treasuries rallied and the dollar dropped after the Institute for Supply Management’s index of services fell by the most since April 2020 to contractionary territory and cooler wage growth fueled expectations the Fed will slow its pace of rate hikes.
The December inflation report due Thursday will be front of mind for traders after the jobs data failed to offer a clear picture of the state of the American labor market, with unemployment at its lowest level in decades, while wage gains were weak. Kansas City Fed’s Esther George, on Friday, warned that officials will have a tough road ahead as they attempt to balance inflation and employment while others have previously emphasized rates will be higher, and held there for longer than earlier anticipated.
Read More: Fed Officials Call for More Hikes Even as Price Pressures Cool
Swaps contracts show investors now expect the policy rate to peak at under 5% this cycle, down from 5.06% just before Friday’s jobs report. While traders remain divided about the size of February’s hike, with 32 basis points of tightening priced in, it appears that a quarter-point move is seen as more likely than a half-point increase.
While pressure on the Fed to hike by 50 basis points on Feb. 1 has eased, “policy makers appear to be increasingly frustrated by market-pricing at odds with Fed signaling in terms of both the terminal funds rate and timing of initial rate cut,” BNP Paribas economists led by Carl Riccadonna wrote in a note to clients. “This could tilt their bias toward a more forceful response at the next meeting.”
Meantime, China’s economic growth will quickly rebound and return to its “normal” path as Beijing provides more financial support to households and private companies to help them recover after the nation ended its Covid-Zero policy, Guo Shuqing, party secretary of the People’s Bank of China, said in an interview with People’s Daily published on Sunday.
Read More: China’s Open Borders Mark Covid Zero End, Spark Homecoming Rush
Some of the main moves in markets:
Stocks
- Nikkei 225 futures rose 0.9% on Friday. Cash markets are closed for a public holiday
- S&P/ASX 200 futures rose 1%
- Hang Seng futures rose 1.5%
Currencies
- The Bloomberg Dollar Spot Index fell 1%
- The Japanese yen rose 0.1% to 131.93 yen per dollar Monday
- The Australian dollar was little changed at 68.78 US cents
- The euro was little changed at $1.0642
Cryptocurrencies
- Bitcoin rose 0.2% to $16,965.42
Bonds
- The yield on 10-year Treasuries declined 16 basis points to 3.56% on Friday. There will be no cash trading of Treasuries in the Asia session on Monday
- The yield on Australian 10-year notes fell 13 basis points to 3.69% on Monday
Commodities
- West Texas Intermediate crude edged 0.1% higher to 73.77 a barrel
- Gold futures rose 1.6% to $1,869.70 an ounce
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