Stocks rise amid Fed-pause bets; yuan down on PBOC: markets wrap
An index of Asian equities rose along with US and European futures amid optimism that the Federal Reserve will pause its most-aggressive tightening campaign in decades.
Chinese shares bucked the trend, declining even after the People’s Bank of China cut a short-term policy interest rate to help aid the economy. The shift did have an impact in rates and currency markets, with Chinese bond yields sliding and the yuan weakening about 0.2% versus the dollar.
The lowering of the seven-day reverse repurchase rate on Tuesday heightens attention on the PBOC’s monthly operation on Thursday for its medium-term lending facility. Any shift here could provide more significant stimulus to the market, while also underscoring how much China is struggling to rebound from the pandemic.
“The rate-cut timing came a bit earlier than expected before the MLF yield roll-over day, suggesting that the PBOC may attempt to act ahead of the curve and Fed meeting to mitigate the rate-cut impact on the yuan,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
Japanese shares showed the biggest gains in the region, with the Topix rallying more than 1% in a third day of gains that have taken the index to the highest level since 1990. The Nikkei 225 advanced about 1.6%.
Contracts for US benchmarks rose slightly in Asia after the Nasdaq 100 and the S&P 500 closed at the highest levels since April 2022.
The two-year US Treasury yield, which is sensitive to imminent central bank moves, edged lower for a second day. The Bloomberg Dollar Spot Index was slightly lower as major currencies traded within ranges of about 0.2% against the greenback.
Beyond the immediate action of the Asia session, all eyes remain on the Federal Open Market Committee, which is expected to keep interest rates in the 5%-5.25% range on Wednesday, assuming that consumer price index data later on Tuesday shows subdued inflationary pressure. The likelihood of a hike is higher in July, with swaps showing an almost quarter-point of additional tightening priced in by next month’s meeting.
Oil was fractionally higher after a heavy drop on Monday that came as Goldman Sachs Group analysts cut their crude forecast for the third time in six months. Even with Saudi Arabia’s decision less than two weeks ago to cut 1 million barrels a day of production, the bank sees crude supplies swelling, and trimmed its year-end price estimate to $86.
On Monday in the US, Tesla climbed for a 12th straight session — a record winning run — and Apple hit an all-time high. KeyCorp and Citizens Financial Group led losses in banks after disappointing updates at an industry conference.
Oracle gained as its sales beat estimates, signaling the software maker’s cloud business is benefiting from demand for artificial intelligence workloads. DM