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Stocks extend rally on peak-rate bets, yen gains: markets wrap

Stocks extend rally on peak-rate bets, yen gains: markets wrap
Residential and commercial high-rise buildings on the skyline beyond traffic on the Beirut to Jounieh freeway in Beirut, Lebanon, on Sunday, April 30, 2023. (Photo: Francesca Volpi/Bloomberg)

Asian stocks look poised for their best weekly gains since November on hopes for stronger efforts to bolster the Chinese economy and bets that the US monetary tightening cycle is nearing an end. The yen rallied for a seventh day. 

Shares advanced in South Korea, Australia and Hong Kong, helping extend the MSCI Asia Pacific Index’s weekly rally to above 4%. 

“We’re going to get more fiscal stimulus, more fiscal support from the government and I think that that could potentially ignite some animal spirits in China,” David Chao, global market strategist for Asia Pacific at Invesco Asset Management, said on Bloomberg Television. “A lot of the pessimism for Chinese equities appears to be overdone at these levels.”

Stocks were mixed in Japan, as the yen headed for a seven-day winning streak, which would mark its best performance since 2018.

Many investors believe the yen’s strength “is reflective of increasing conviction in a hawkish adjustment in the Bank of Japan’s yield curve control policy later this month,” wrote Karl Schamotta, chief market strategist at Corpay Cross-Border.

The BOJ will probably adjust its yield curve control program at its policy meeting this month as inflation is stronger than expected, said Hideo Hayakawa, a former executive director at the central bank, in an interview Thursday. “If they don’t, it doesn’t make sense.”

The dollar slipped for a sixth-straight session. That put an index of the currency’s strength on pace for the worst week since November. Treasuries were little changed in Asia.

The offshore yuan ticked higher. China has ample foreign exchange reserves and will “resolutely” prevent wild swings in the yuan exchange rate, People’s Bank of China Deputy Governor Liu Guoqiang said at a briefing Friday. The currency’s short-term movement cannot be predicted accurately, but it hasn’t deviated from its fundamentals, Liu added.

Easing inflation

Wall Street and markets globally got an extra dose of encouragement to bid up riskier assets after another US inflation report highlighted the view that price pressures are easing in the world’s largest economy.

The producer price index for final demand rose 0.1% in June from a year earlier, the smallest advance since 2020. The figures came just a day after data showed consumer prices increased at the slowest pace since 2021.

Tech megacaps led gains on Thursday, with the S&P 500 topping 4,500 and the Nasdaq 100 up over 1.5%. Yields on policy-sensitive two-year Treasuries dropped 12 basis points to 4.63%.

Disinflation has become a buzzword across trading desks, even though core inflation is still running above the central bank’s 2% target. Equities gained further traction on news that Fed Bank of St. Louis president James Bullard — who called for aggressive hikes — has resigned.

Fed Bank of San Francisco president Mary Daly, however, told CNBC on Thursday that it’s too soon for policymakers to say they have done enough to return US inflation to their target. While the latest consumer-price report “is very positive,” the official said she’s in a “wait-and-see mode on that, because I remain resolute to bring inflation down to 2%.”

Federal Reserve Governor Christopher Waller said he expects the US central bank will need to raise interest rates twice more this year to bring inflation down to its target.

“Getting towards 2% is still going to take a lot of work,” Marvin Loh, a senior macro strategist at State Street, said on Bloomberg Television. “Higher for longer is still going to be a message that comes out of the Fed and ultimately might be appropriate.”

Traders are also awaiting the unofficial start of the second-quarter US earnings season on Friday. Goldman Sachs Group Inc. strategists expect US companies to be able to meet the low bar set by consensus. Bloomberg Intelligence strategist Gina Martin Adams said “the S&P 500 earnings season will likely reveal more of the ‘less bad than feared’ trend that emerged in 1Q”.

Back in Asia, the Australian dollar and the country’s government bond yields were steady after the government named Michele Bullock as the new central bank governor, who will succeed Philip Lowe when his term expires in September. DM


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