Business Maverick

Business Maverick

Asia stocks rise, set for highest since February: markets wrap

Asia stocks rise, set for highest since February: markets wrap
Pedestrians walk past an electronic board displaying stock information inside the Australian Securities Exchange, operated by ASX Ltd., in Sydney, Australia, on Thursday, 10 November 2016. (Photo: David Moir/Bloomberg)

Asian equity markets advanced as a slew of data this week strengthened bets that the Federal Reserve is nearing the end of its most aggressive rate-hike cycle in decades.

An Asia Pacific stock gauge was headed for the highest close since mid February, while benchmarks from Japan to China all rose on Friday. The S&P 500 climbed the most this month and the tech-heavy Nasdaq had the best day since the middle of March on Thursday on weaker-than-expected US factory gate prices. Futures for US equities were little changed. 

A Bloomberg gauge of the dollar’s strength fell for the fourth day and the currency remained weaker against its G10 peers. The euro maintained its advance after it surged to the highest in a year on Thursday on speculation the Fed has one rate hike left in May. 

“Japanese stocks are expected to be firm throughout the day as the outlook for US monetary tightening has receded given the softening US PPI data and an increase in jobless claims,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities.

South Korean won led the gains among Asian currencies on Friday. In more signs of peak rates, the Singapore central bank kept its policy settings unchanged after five tightening moves. 

Treasuries were steady on Friday after the yields ended higher in the New York session amid improved risk sentiment. The policy-sensitive two-year yield, however, stayed within a narrow range around 3.96% as the market continued to lean toward a quarter-point Fed hike in May with the central bank then expected to pause over the summer. Australian bonds fell.

US producer prices were weaker than economists forecast, while jobless claims beat estimates. That added to earlier data that headline consumer prices were slowing. 

US rates have begun a process of consolidation that may stretch through next week and into the pre-Federal Open Market Committee period of radio silence, according to BMO strategists Ian Lyngen and Benjamin Jeffery. “Investors will remain wary of any indication that the regional banking turmoil has translated into materially tighter lending standards throughout the system,” they wrote in a note.

As US banks kick off the earnings season later on Friday, “even confirmation that lenders are taking a more conservative approach will offer no ‘obvious’ market implications in light of the fact 10-year yields are already trading in a sub-3.50% range”, they said.

Investors will also be on the lookout for commentaries by executives on the probability of a recession. 

“When you’re talking about earnings, that could just give us the data that shows that we’re seeing the destruction or the challenge on growth that all of this tightening may have impacted,” Kathryn Kaminski, chief research strategist and portfolio manager at Cambridge-based AlphaSimplex Group, said on Bloomberg Radio. BM/DM

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