Business Maverick

Business Maverick

Asia stocks rise on China and Fed outlook hopes: markets wrap

Asia stocks rise on China and Fed outlook hopes: markets wrap
A trader works on the floor of the New York Stock Exchange at the Opening Bell in New York, New York, USA, 28 February 2023. (Photo: EPA-EFE/JUSTIN LANE)

Asian stocks rose as traders bet that China’s latest property stimulus measures will aid the economy and data suggested that US interest rates may be approaching a peak.

Hong Kong benchmark indexes outperformed the region as investors resumed trading after a closure on Friday. Property stocks extended their advance, with China’s property shares gauge rising above 5% on stimulus measures taken to bolster the sector. Other major indexes also gained, putting a regional equity benchmark on track for its highest close since mid-August.

Futures for US equities steadied after the S&P 500 Index had its best week since June last week. Expectations that supply cuts by OPEC+ leaders will tighten the market sent West Texas Intermediate crude to its eighth consecutive day of advance and heading for the highest close since November. Brent also rose, moving toward $90. US markets are shut on Monday for the Labor Day holiday.

The Chinese government last week said it will allow the nation’s largest cities to cut down payments for home buyers and encouraged lenders to lower rates on existing mortgages. The nationwide minimum down payment will be uniformly set at 20% for first-time buyers and 30% for second-time purchasers. Beijing and Shanghai followed through by lowering mortgage requirements for some homebuyers, while home transactions in China’s biggest cities soared over the weekend.

The recent measures have the potential to “help restore homebuyers’ sentiment, moderately alleviate household interest payment pressure and pave the way for 4Q sales pick-up beyond seasonality,” according to Yi Wang, an analyst at Goldman Sachs Group.

Sentiment was further propped up by news that distressed Chinese builder Country Garden won approval from creditors over the weekend to extend a maturing yuan bond. Its shares jumped. However, the developer has just days to avoid default on some dollar bonds.

The dollar ticked lower after gaining on Friday against major peers. There is no trading of cash Treasuries due to the US holiday.

Cooling

This year’s US stock market rally is strong enough to withstand another leg higher for bond yields, according to the latest Markets Live Pulse survey. Also, just over 50% of survey takers expect the positive relationship between equities and bonds to turn negative by the end of this year, reverting to the long-term trend of this century.

Friday’s US jobs report showed a labor market undergoing a controlled cooling, illustrated by solid hiring, slower earnings growth and more people returning to the workforce. The moderation gives the Fed room to pause rate increases this month while keeping options open for another hike later in the year. 

Meanwhile, as softer economic data weigh on Treasury yields, stock market participants seem willing to bid valuations back up on the view that the late-cycle environment is being extended once again, according to Morgan Stanley’s Mike Wilson. 

“With inadequate evidence to affirm or contradict that view, price remains the governing factor for many investors’ conclusions about where we are in the cycle,” he wrote in a note. “We continue to recommend a more defensive growth posture in one’s portfolio given that growth fears or financial stress could return at any moment in a late-cycle environment, particularly as we enter September.”

Elsewhere, key rate decisions for central banks are scheduled in Australia and Malaysia this week with rates expected to remain on hold. 

Traders will also be monitoring China’s trade and inflation data due later this week that will likely signal that the economy’s recovery remains fragile, keeping pressure on policymakers to roll out more stimulus. DM

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