Asian Stocks on Track for Best Run Since January: Markets Wrap

2023-08-01 10:26

Shares in Asia rose Tuesday following bullish trade on Wall Street as investors parsed further signs of stability

Asian Stocks on Track for Best Run Since January: Markets Wrap

Shares in Asia rose Tuesday following bullish trade on Wall Street as investors parsed further signs of stability in the global economy.

Equities in Japan, Australia, South Korea rose. Hong Kong’s Hang Seng Index also opened higher while mainland China shares whipsawed. Gains across the region placed a gauge of Asia stocks on track for its seventh consecutive advance — a run not seen since January, when investors initially warmed to China’s reopening.

Futures contracts for US stocks were mildly positive after the S&P 500 and Nasdaq 100 drifted higher on Monday to extend a run of monthly gains for the two benchmarks.

In the region, the Reserve Bank of Australia will deliver its latest interest rate decision later today. Financial markets are betting the RBA will keep its cash rate unchanged, while economists see a 25 basis-point hike to 4.35%. Australian bond yields edged lower.

Investors are also focused on China, which in July experienced the biggest drop in home sales in a year. The slowdown underscores why policymakers are targeting the property sector with measures to support growth. The decline in sales is also hurting the country’s developers. Country Garden Holdings Co. faces $2.9 billion in bond payments for the rest of the year, with the Chinese developer’s liquidity woes testing its ability to meet deadlines and avoid a first-ever default.

China’s Caixin PMI data released Tuesday showed a contraction in manufacturing in July, falling short of estimates that predicted a small expansion.

The yen traded weaker against the dollar after declining Monday as the Bank of Japan announced an unscheduled bond-purchase operation to tamp down rates following changes to its yield curve control program on Friday.

The tweak to YCC “is great for the Japan equity story,” Gareth Nicholson, chief investment officer and head of discretionary portfolio management for Nomura International Wealth Management said on Bloomberg Television, referring to the yield curve control policy. “You have a measured, controlled policy change, controlled growth and controlled inflation at the moment — these are all things investors like.”

The euro-area economy returned to growth while underlying inflation pressures persisted — supporting early arguments for the European Central Bank to raise interest rates again.

In the US, data pointing to inflation becoming tamed boosted optimism the world’s biggest economy will have a soft landing as the Federal Reserve nears the end of its monetary-tightening cycle.

The S&P 500 edged higher to around 4,590 Monday, closing at a 16-month high. The megacap space saw subdued action, with Apple Inc. and Amazon.com Inc. due to report earnings in the coming days. The Nasdaq 100 notched its longest streak of monthly gains since August 2020. Treasury 10-year yields traded near 3.95% while the dollar posted a small gain.

The buoyant mood on Wall Street has seen a retreat among bearish institutional investors, economists and strategists as market returns and economic data continue to challenge expectations, said Mark Hackett at Nationwide.

Citigroup Inc.’s Scott Chronert has joined the list of strategists who have revisited their gloomy outlooks in recent weeks, raising his forecast for the S&P 500. Morgan Stanley’s Michael Wilson, who has been among the market’s leading pessimists throughout 2023, changed his tone and now sees the rally running further.

“The challenges companies have endured – stubborn inflation, weak markets, and sluggishness internationally – are no longer headwinds,” Hackett noted. “Now, we’re not only seeing tailwinds heading into 2024, but we’re getting less disruptive reactions in the stock market following earnings reports.”

In corporate news, Exxon Mobil Corp. climbed as Bloomberg News reported it’s in talks with Tesla Inc., Ford Motor Co. and other automakers about supplying them with lithium. SoFi Technologies Inc. surged 20% as the online bank raised its revenue guidance. Yellow Corp., which hauls about 15% of major companies’ so-called less-than-truckload shipments, soared after ceasing operations and telling union leaders that it plans to file for bankruptcy.

Fed Survey

Traders took a Federal Reserve survey of lending officers in stride. As hinted by Chair Jerome Powell, the central bank said financial institutions reported tighter standards and continued weak demand for loans in the second quarter, extending a trend that began before recent stresses in the banking sector emerged.

Meantime, Fed Bank of Chicago President Austan Goolsbee said data showing slower inflation is “fabulous news,” but he hasn’t yet decided on whether to support pausing rate hikes at the next policy meeting. Over the weekend, his Minneapolis counterpart Neel Kashkari said the inflation outlook is “quite positive,” though the central bank’s aggressive tightening will likely result in some job losses and slower growth.

Elsewhere, oil edged down after surging 16% in July, its biggest monthly advance since early 2022.

Key events this week:

Reserve Bank of Australia policy decision, Tuesday
Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Tuesday
US construction spending, ISM Manufacturing, job openings, light vehicle sales, Tuesday
China Caixin Services PMI, Thursday
Eurozone S&P Global Eurozone Services PMI, PPI, Thursday
Bank of England rate decision, Thursday
US initial jobless claims, productivity, factory orders, ISM Services, Thursday
Eurozone retail sales, Friday
US unemployment rate, non-farm payrolls, Friday

Some of the main moves in markets:

Stocks