Asian stocks rise ahead of CPI; yen gains on BOJ: markets wrap

Stocks advanced across most of the region, putting an Asia equity gauge on course to snap a two-day losing streak. Shares fluctuated in Hong Kong and on the mainland after an index of US-listed Chinese stocks earlier jumped by the most in almost two weeks. 

The S&P 500 added 1.1% and the tech-heavy Nasdaq 100 climbed 1.6% after a survey showed Americans drastically reduced their expectations for household income growth amid tighter monetary policy.

The yen held a small advance after the government officially nominated Kazuo Ueda as the next Bank of Japan governor. Bets have increased recently that the BOJ’s yield-curve control and negative-rate policies may be abolished soon under Ueda’s leadership. 

Futures on 10-year bonds edged higher while the benchmark debt targeted by the BOJ was untraded on Tuesday. Earlier, data showed Japan’s economy returned to growth in the three months through to December, while consumption recovered, business spending contracted and inventories dragged down on the economy.

The possibility of a prolonged hiking cycle in Japan will be the swing factor for the market, according to Morgan Stanley strategists John Kalamaras and Wanting Low. “To the extent a BOJ hiking cycle does not materialize, that should help cement JPY’s status as a ‘funding currency’,” they wrote in a note. “We think more conviction is needed though that BOJ’s reaction function will not be altered and hence stay neutral in the meantime.”

A gauge of greenback strength and 10-year US Treasury yields were both little changed. The New Zealand dollar extended a decline after two-year inflation expectations eased.

Meanwhile, the Hong Kong Monetary Authority bought the local currency for the first time since November to manage its peg to the dollar. Late last week, the Hong Kong dollar touched the weak end of its 7.75-7.85 trading band versus the greenback, increasing the likelihood of government intervention.

US inflation probably accelerated in January to 0.5% from December’s 0.1%, while slowing year on year to 6.2% from 6.5%, according to estimates compiled by Bloomberg. 

Oil prices, a key inflation component, fell on a report that the Biden administration plans to sell more crude oil from the Strategic Petroleum Reserve. Gold steadied.

Still, JPMorgan Chase & Co’s Marko Kolanovic said that investors should be in bonds since “a recession is currently not priced into equity markets”. Morgan Stanley’s Michael Wilson argued that US stocks are ripe for a selloff after prematurely pricing in a pause in Fed rate hikes. BM/DM