Asian stocks advanced after China’s support for its equities market revived positive sentiment and as Jerome Powell said the Federal Reserve would “proceed carefully” on whether to raise interest rates again.
(Bloomberg) — Asian stocks advanced after China’s support for its equities market revived positive sentiment and as Jerome Powell said the Federal Reserve would “proceed carefully” on whether to raise interest rates again.
Chinese equities rallied as the government lowered stamp duty on stock trades for the first time since 2008 and pledged to slow the pace of initial public offerings. Both the Hang Seng and the CSI 300 indexes were on course for their biggest gains in more than a month, with all sectors trading in the green.
Shares also rose in Japan, South Korea and Australia. Contracts for US benchmarks were marginally higher after both the S&P 500 Index and the Nasdaq 100 Index advanced Friday post Powell’s remarks.
The yield on China’s 10-year government bond advanced on the stamp duty cut while the offshore yuan strengthened after the People’s Bank of China again set a stronger-than-expected reference rate on the currency.
The news has raised hopes of a turnaround for China’s equities market, according to Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore. “The last time the levy was cut was in 2008, which helped to spur a rally,” he said. “Investors will be hoping for a repeat this time.”
However, investors in Chinese equities still have countervailing forces to weigh, with data on Sunday showing a decline in industrial profits eased while deflation risks remain an overhang.
The dollar weakened against most Group-of-10 currencies. The Australian dollar, which is sensitive to China’s economic outlook, led the gains as it strengthened 0.5% against the greenback.
Treasury yields steadied, with the yield on two-year paper now above 5%. Treasuries were little changed during Powell’s long-awaited speech in Jackson Hole, but yields pushed up after it concluded as the longer-for-higher rates message appeared to sink in on Friday.
As Treasury yields stay high and the Fed is likely to hike one more time this year, “high quality fixed income still presents a strong risk-adjusted investment opportunity,” said Aninda Mitra, a macro and investment strategist at BNY Mellon Investment Management in Singapore. “Long-term investors will be able to capture very attractive yields over the holding period of 12 months or more.”
Still, Powell cautioned that policy will remain tighter for longer and that the process of bringing inflation back to its target “still has a long way to go.” He also suggested officials could hold rates steady in September, as investors expect.
Fed Bank of Philadelphia President Patrick Harker signaled he favored holding rates at current levels to allow the effects of cumulative tightening to work through the system. His Cleveland counterpart Loretta Mester noted that under-tightening interest rates would be “a worse mistake” than raising them too much. Fed Bank of Chicago head Austan Goolsbee said the Fed is part of the way down the road to a soft landing.
Meanwhile, this week in Asia will be a busy one for investors with more than 360 members of the MSCI Asia Pacific Index expected to announce results in the highest weekly tally this season. Traders will watch for signs of corporate profits bottoming out, which may support further gains in Asian equities.
Elsewhere, oil fluctuated and gold steadied.
Key events this week:
- US Conference Board consumer confidence, Tuesday
- Eurozone economic confidence, consumer confidence, Wednesday
- US GDP, wholesale inventories, pending home sales, Wednesday
- China manufacturing PMI, non-manufacturing PMI, Thursday
- Japan industrial production, retail sales, Thursday
- Eurozone CPI, unemployment, Thursday
- ECB publishes account of July monetary policy meeting, Thursday
- US personal spending and income, initial jobless claims, Thursday
- China Caixin manufacturing PMI, Friday
- Eurozone S&P Global Eurozone Manufacturing PMI, Friday
- South African central bank governor Lesetja Kganyago, Atlanta Fed President Raphael Bostic, BOE’s Huw Pill, IMF’s Gita Gopinath on panel at the South African Reserve Bank conference, Friday
- Boston Fed President Susan Collins speaks at virtual event, Friday
- US unemployment, nonfarm payrolls, light vehicle sales, ISM manufacturing, construction spending, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 12:00 p.m. Tokyo time. The S&P 500 rose 0.7%
- Nasdaq 100 futures rose 0.2%. The Nasdaq 100 rose 0.85%
- Japan’s Topix rose 1.4%
- Australia’s S&P/ASX 200 rose 0.6%
- Hong Kong’s Hang Seng rose 2.1%
- The Shanghai Composite rose 2.5%
- Euro Stoxx 50 futures rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0809
- The Japanese yen was little changed at 146.51 per dollar
- The offshore yuan rose 0.1% to 7.2869 per dollar
- The Australian dollar rose 0.4% to $0.6432
Cryptocurrencies
- Bitcoin fell 0.3% to $26,015.24
- Ether fell 0.3% to $1,649.57
Bonds
- The yield on 10-year Treasuries was little changed at 4.24%
- Australia’s 10-year yield was little changed at 4.16%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Matthew Burgess, Brett Miller and Chester Yung.
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