Asia stocks advance on bets US rates near peak: markets wrap
Shares in Asia advanced following Friday’s rally in US stocks and bonds as investors gave further credence to the idea that interest rates are near the cycle peak.
A region-wide stock gauge traded at the highest level in almost a month and extended its winning streak to a fourth trading day, with Korean shares leading the rally. The Kospi Index gained as much as 4.1% following news on Sunday that the country would ban trading with borrowed shares until the end of June.
Most Asian currencies rose against the dollar in catchup to the greenback’s fall on Friday. 10-year Treasury yields edged higher in Asian trading after falling nine basis points in the previous session. The policy-sensitive two-year declined 15 basis points at the end of last week, in a sign of shifting rate expectations. Meanwhile, US equity futures were flat on Monday following the best week this year for the S&P 500, which rallied 5.9%.
Investors brought forward their forecasts for Federal Reserve rate reductions next year, according to swaps pricing, and have now fully priced in a cut by June. The heightened predictions for rate cuts were partly driven by a weaker expected jobs report and a small increase in US unemployment.
“There’s a bit more reason for investors to be more optimistic that the Fed is probably done with rate hikes, but one should not let one’s guard down,” Vasu Menon, managing director, investment strategy for OCBC Bank Singapore, said on Bloomberg Television. “If the economy proves to be more resilient, if inflation proves to be more stubborn, bond yields could go up once again.”
Forecasts for Fed cuts next year are at odds with the so-called higher-for-longer narrative policymakers have outlined in recent months, setting the market, and Fed officials, on a collision course.
“We think the stock market’s correction is over and that the S&P 500 is back on track to end the year at 4600,” said Ed Yardeni, founder of Yardeni Research Inc., said in a Monday note. Such a level would imply a 5.5% gain by the close of 2023.
Shares in Westpac rose after the bank raised its dividend and announced a share buyback plan. DBS Group Holdings Ltd exceeded analyst profit estimates in its third-quarter results released Monday, helped along by commercial lending.
Elsewhere, Bank of Japan Governor Kazuo Ueda said on Monday the central bank is making gradual progress toward its inflation target, in a largely dovish policy message that leaves the door open as to when it may come time for normalization.
On Tuesday, investors will be looking at a potential interest rate increase from the Reserve Bank of Australia, after a four-meeting pause in rate hikes. China will release trade data, following comments from Li Qiang, the Chinese premier, who pledged to expand imports in comments on Sunday.
In commodities, oil gained in Asia after Saudi Arabia and Russia reaffirmed they will stick with oil supply curbs of more than 1 million barrels a day through year-end. Gold edged lower after rallying on Friday on optimism the Federal Reserve can avoid implementing further monetary tightening.