Business Maverick

Business Maverick

Stocks on course to snap three-week losing streak: markets wrap

Stocks on course to snap three-week losing streak: markets wrap
An electronic stock board outside a securities firm in Tokyo, Japan, on Monday, Nov. 21, 2022. The world's central banks must keep raising interest rates to fight soaring and pervasive inflation, even as the global economy sinks into a significant slowdown, the OECD said. (Photo: SeongJoon Cho/Bloomberg)

A gauge of global stocks was poised to end a run of three-straight weekly losses as investors weighed the negative impact of higher interest rates against positive growth signs from China’s economy. 

Asian equities were led higher by gains in Hong Kong and Tokyo on Friday, building on an advance in the US on Thursday, when the S&P 500 jumped the most in more than two weeks. 

Sentiment in the share market was also supported by comments from Federal Reserve Bank of Atlanta president Raphael Bostic that the central bank could be in a position to pause rate hikes sometime this summer. Investors in rates markets continued to focus on inflation risks and more hawkish remarks from other Fed officials.

Treasury yields were steady in Asia on Friday after moving higher across the curve in the US session, when the 30-year rate followed the 10-year maturity in piercing 4%. The policy-sensitive two-year rate was about 10 basis points below the 5% level.

Japan’s benchmark yield climbed back above the central bank’s 0.5% ceiling as traders tested policymakers before next week’s key policy meeting. The BOJ is said to be leaning toward monitoring the impact of recent tweaks to its stimulus program rather than making another adjustment at governor Haruhiko Kuroda’s final policy meeting,  according to people familiar with the matter.

The dollar slipped on Friday after rising against most of its G10 counterparts on Thursday. The decline came as stronger-than-expected Caixin China PMI data bolstered investor demand for risk assets. The offshore yuan rose.

The comments from Bostic, who is not a voting member in Fed policy decisions this year, were seen as dovish by some investors, while other officials in recent days have reinforced their hawkish rhetoric. After the US market closed, Federal Reserve governor Christopher Waller said that he’d favour raising interest rates even more than his current outlook if economic indicators continue to come in hotter than expected.

The focus now is on how much higher interest rates might go in the US and Europe, with swaps markets now pricing a peak Fed policy rate of 5.5% in September, and some traders even betting that the benchmark interest rate could rise to 6%. 

“We think the Fed will roughly end between 5.25% and 5.75%. I think that’s restrictive enough,” Priya Misra, global head of rates strategy at TD Securities, said on Bloomberg Television. “But I think that there is a cohort of investors who think the Fed may have to hike a lot more and that’s why interest rates are rising as much as they have recently.”

TD Securities expects risk assets to struggle as the Fed achieves its goal of slowing the economy through rate hikes and owning long Treasuries will then be an attractive longer-term play.

Traders are also waiting to see potential triggers for risk sentiment from China’s annual gathering of the National People’s Congress, which begins Sunday. 

“We don’t expect very positive outcomes on the growth side, but you could see better communication in terms of reforms, in terms of regulations, and that could also help drive earnings upside in China,” Mixo Das, Asia equity strategist at JPMorgan Chase & Co, said on Bloomberg Television.

In other markets, oil was lower but headed for a first weekly gain in three weeks as optimism over China’s recovery offset persistent concerns on tighter US monetary policy. Gold climbed. BM/DM

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