Business Maverick

Business Maverick

Asia stocks mixed, JGBs fall on central bank bets: markets wrap

Asia stocks mixed, JGBs fall on central bank bets: markets wrap
A view of Persian Gulf from inside Devon, an oil tanker transferring oil to exporting markets on 23 March 2018.

Expectations over central bank actions drove a divergence in Asian markets, with Australian stocks poised for a record while Japanese bond yields rose on hawkish signals from the Bank of Japan.

Most Asian stocks edged lower with caution resurfacing ahead of the Federal Reserve’s policy meeting later on Wednesday. The latest data from China underscoring the economy’s weakness also didn’t help sentiment. US equity futures fell following disappointing earnings from key US technology companies Microsoft Corp. and Alphabet Inc.

A slew of events shifted bets on monetary policy. Traders boosted wagers on a rate cut by the Reserve Bank of Australia following the country’s soft inflation data, sending the local dollar and government bond yields lower. Meanwhile, Japanese bond yields advanced and the yen fluctuated following hawkish signals from a summary of the Bank of Japan’s latest meeting.  

“Markets have a lot to chew on today after big tech earnings, while not absolutely disappointing, failed to appease market expectations and could hurt the broader risk sentiment,” said Charu Chanana, head of FX Strategy for Saxo Capital Markets Pte. “China PMI also had little to cheer about, while BOJ hawkish hints are seen to be picking up. FOMC comes next and markets will be scouring for dovish hints.” 

Selloff in Chinese stocks extended Wednesday after another month of contraction in factory activity, with a key benchmark set to wipe out all the gains spurred by hopes of stronger support measures by the authorities. A lack of details on the reported stabilisation fund and China Evergrande Group’s liquidation revived concerns about the outlook. 

The dollar strengthened after retreating in the previous three sessions. Treasury two-year yields and ten-year yields were steady in Asian trading.

BOJ board members continued to discuss prospects for ending the negative rate policy during their meeting last week, with a member indicating conditions offer a “golden opportunity”. An increase in rates would be the nation’s first since 2007 and would bring an end to the world’s last negative rate.

In earnings, Samsung Electronics Co. posted its fourth straight quarter of profit decline in the holiday quarter, after a long-awaited recovery in chip and electronics demand delivered few returns. China’s battery giant Contemporary Amperex Technology Co. Ltd. posted a jump in full-year earnings, allaying investor concerns that profitability could be waning. Alphabet Inc. sank after reporting revenue from its core search advertising business that fell short of estimates. 

US benchmarks struggled for solid footing in Tuesday’s session as Wall Street digested a hotter-than-estimated reading on job openings, which left investors guessing what Fed Chair Jerome Powell will say Wednesday.  

Resilient market 

The market further trimmed bets on a March Fed cut. Swap contracts referencing the March Fed meeting date — the next one after this week’s — now show about a third of a 25-basis-point drop. Late last year, a quarter-point cut in March was completely priced in, reflecting expectations for labour-market cooling that have failed to materialise. 

US job openings unexpectedly rose in December to the highest level in three months while fewer Americans quit their jobs. Tuesday’s data kicks off a slew of releases that will offer insights into the state of the labour market. A report due Wednesday is forecast to point to easing employment costs at the end of 2023, while the government’s jobs report Friday is projected to show US employers added around 185,000 positions in January. 

“Traders are on edge, anticipating a potential pivot point in the investment market,” said Hebe Chen, an analyst at IG Markets based in Melbourne. “Last night’s job and housing data appear to support a hawkish Fed, casting a shadow on optimism for any near-term easing. Furthermore, the price action following Microsoft and Alphabet’s earnings suggests that the bar to sustain the price rally is now considerably high.”  

Elsewhere, oil headed for its first monthly gain since September as an escalation of attacks on ships in the Red Sea spurred a diversion of tanker traffic and raised fears about a wider conflict in the Middle East.

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