Asia splits Fed rate bets, China reopening boosts yuan

  • https://tmsnrt.rs/2zpUAr4
  • US stock futures rise slightly, Nikkei futures gain
  • Hopes the US CPI report will argue for small Fed hikes
  • Earnings season kicks off Friday with big banks
  • Dollar nurse losses, yuan at highest since mid-August

SYDNEY, Jan 9 (Reuters) – Asian stocks rallied on Monday as hopes of less aggressive U.S. rate hikes and the opening of China’s borders boosted prospects for the global economy.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 2.0% to a five-month high, with South Korean stocks (.KS11) gaining 2.2%.

Chinese blue chips (.CSI300) gained 0.7%, while Hong Kong stocks (.HSI) climbed 1.4%. The Chinese yuan also firmed to its highest since mid-August below 6.8000.

The Japanese Nikkei (.N225) was closed for a holiday, but futures were trading at 26,215, compared to Friday’s cash close of 25,973.

S&P 500 futures added 0.2% and Nasdaq futures added 0.3%. EUROSTOXX 50 futures gained 0.6%, while FTSE futures gained 0.3%.

Earnings season kicks off this week with major US banks on the street fearing no year-over-year growth in overall earnings.

“Excluding energy, the S&P 500 EPS (earnings per share) is expected to fall 5%, led by 134 basis points of margin compression,” Goldman Sachs analysts wrote. “As we head into reporting season, earnings revision sentiment is negative relative to history.

“We expect further downward revisions to the consensus EPS forecast for 2023,” they added. “China’s reopening is an upside risk to 2023 EPS, but margin pressures, taxes and recession pose greater downside risks.”

A sign of the tension came from reports that Goldman would begin cutting thousands of jobs at the company from Wednesday as it braces for a tough economic environment. Read more

In Asia, Beijing has now opened borders that had been virtually closed since the start of the COVID-19 pandemic, allowing increased traffic through the country. Read more

Bank of America analyst Winnie Wu expects the Chinese economy, the world’s second-largest economy, to enjoy a cyclical recovery in 2023 and anticipates a market rally thanks to both a multiple expansion and 10% EPS growth.

CLEAR THE FED

Sentiment on Wall Street was boosted last week by a benign mix of strong US payroll gains and slower wage growth, combined with a sharp drop in activity in the services sector. The market reduced bets on rate hikes for the Federal Reserve.

Fed funds futures now imply about a 25% chance of a half-point rise in February, up from about 50% a month ago.

This will make investors ultra sensitive to anything Fed Chairman Jerome Powell might say at a central bank conference in Stockholm on Tuesday.

It also reinforces the importance of U.S. consumer price index (CPI) data on Thursday, which is expected to show annual inflation slowing to a 15-month low of 6.5% and a falling base rate. at 5.7%.

“At NatWest, we have CPI forecasts below consensus, and if correct, this will likely strengthen market prices by 25 basis points from 50 basis points,” said John Briggs, analyst at NatWest Markets.

“In context, this should still be seen as a Fed that is still likely to hike a few more times and then hold rates high until inflation is guaranteed to come down – for us, that means a funds rate from 5 to 5.25%.”

Friday’s mixed data had already seen US 10-year yields fall 15 basis points to 3.57%, while dragging the US dollar lower across the board.

Early Monday, the euro was holding at $1.0673, having rebounded from a low of $1.0482 on Friday. The dollar eased to 131.48 yen, off last week’s high of 134.78, while its index was stable at 103.600.

The Brazilian real was yet to trade after hundreds of supporters of far-right former President Jair Bolsonaro were arrested after storming the country’s Congress, presidential palace and Supreme Court. Read more

The falling dollar and yields were a boon for gold, taking it to an eight-month high around $1,877 an ounce.

Oil prices were more stable, having slipped about 8% last week on demand concerns.

Brent crude jumped 80 cents to $79.37 a barrel, while U.S. crude rose 78 cents to $74.55 a barrel.

Reporting by Wayne Cole; Editing by Bradley Perrett and Christopher Cushing

Our standards: The Thomson Reuters Trust Principles.

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