Asian shares extend global rally; yuan advances: markets wrap
Asian shares rose on Monday as positive momentum from gains on Wall Street and signs of moderating US inflation extended this year’s rally in global stocks. The yuan gained after China’s central bank set a stronger-than-expected fix for the currency.
Japan’s Topix index was on course for another gain that has the index repeatedly setting fresh highs back as far as mid 1990. Equities were also higher in South Korea, Australia and China, with notable strength in Hong Kong-listed technology shares.
Shares of Asian electric-vehicle makers and related suppliers climbed after Tesla Inc. delivered a record number of cars worldwide in the second quarter.
Meanwhile, the Bank of Japan’s manufacturing sentiment survey showed confidence among the nation’s big manufacturers rose, the first improvement in almost two years. Sentiment among non-manufacturers was also better.
US equity futures were flat in Asia’s early hours on Monday. The Nasdaq 100 rose almost 2% last week and notched its best ever first-half of a year, with Apple Inc. hitting the $3-trillion milestone along the way. The S&P 500 reached the highest since April 2022 and posted its best first half since 2019.
Traders were encouraged as data showed inflation is moderating, even if that comes at the expense of growth. The personal consumption expenditures price index, one of the Federal Reserve’s preferred inflation gauges, rose 0.1% in May. From a year ago, the measure stepped down to 3.8%, the smallest annual advance in more than two years.
This kept action in the bond market subdued Friday after what was an eventful first half for the rates market. The Treasuries steadied Monday, while yields on policy sensitive three-year Australian government bonds fell almost seven basis points.
Major currencies were confined to narrow ranges versus the dollar after a gauge of greenback strength slipped 0.3% Friday, extending this year’s losses. The yuan gained after the People’s Bank of China once again set a stronger-than-expected fix for the currency.
China’s Caixin manufacturing PMI data showed the world’s second-largest economy is still struggling to rebound. Traders will also be weighing the implications of Chinese President Xi Jinping elevating a long-serving technocrat as the central bank’s top Communist Party official, which may indicate no drastic shifts in policy for now.
The yen was slightly weaker and is this year’s worst performing Group-of-10 currency. Investors will be watching for any central bank intervention should the yen weaken further.
At the moment, the BOJ seems willing to act when the officials think things are very lopsided, according to Sean Callow, senior currency strategist at Westpac Banking Corp. However, as long as the BOJ hasn’t adjusted its policy and the Federal Reserves maintains tight policy for longer, “they can’t realistically expect that there’s going to be a sharp appreciation in the yen,” he said on Bloomberg Television. “They can only really monitor where the speculators are.”
Oil was marginally lower as the second half kicked off, with traders focused on challenges to demand and a complex supply outlook.
From the US to markets around the world, the rally in equities has generated concern as well as celebration, given how much it appears to have decoupled from a worsening economic backdrop.
Nearly $5-trillion has been added to the value of companies in the Nasdaq 100 since the start of the year, with the tech-heavy gauge defying bubble warnings and jumping almost 40%. The advance in the most-influential group in the S&P 500 helped push the index up 16% in 2023. Gains have been even more pronounced when narrowed down to the megacap space — which has soared 74%.
While history shows that first-half rallies in the Nasdaq 100 of at least 10% are followed by returns averaging about 14% over the second half of the year, there’s worry over valuations. This has recently spurred a surge in bearish bets against the largest tech companies. Short interest as a percentage of shares available to trade is near 12-month highs for Microsoft Corp., Tesla Inc. and Amazon.com Inc., according to data compiled by S3 Partners. DM