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Stocks gain led by Japan on BOJ rate hike momentum: markets wrap

Stocks gain led by Japan on BOJ rate hike momentum: markets wrap
Federal Reserve chair Jerome Powell

Asian stocks climbed, led by Japanese shares, into a week that includes policy decisions from the Bank of Japan and Federal Reserve which will likely set the near-term direction for global markets. 

The MSCI Asia Pacific Index advanced in Asian trading, lifted by a rally in Japan amid a slightly weaker yen. The tech-heavy Nikkei 225 index jumped the most in a month. China’s mainland equities also rose after surprisingly strong economic data was reported. US equity futures climbed after the S&P 500 fell 0.7% on Friday. 

Speculation is mounting that the BOJ will raise its key interest rate on Tuesday after Japan’s largest union group announced the strongest wage deals in more than three decades. The yen edged lower against the dollar in Asian trading.

“Japanese stocks are rising driven by weakness of the yen, and expectations that the currency won’t strengthen even if the central bank hikes,” said Charu Chanana, a strategist at Saxo Capital Markets based in Singapore. “Seems like BOJ is all priced in and focus is much more on Nvidia and Fed this week.”

While swaps traders have priced about 28 basis points worth of rate hikes this year, they see the chance of a March hike at about 54%, according to data compiled by Bloomberg. Goldman Sachs sees the BOJ hiking rates following the wage gains and news reports that predict the short-term rate in the 0%-0.1% range. 

“These developments imply that the BOJ probably no longer needs more data for the policy change, nor to wait to justify the policy change with the quarterly Economic Outlook report in April,” Goldman Sachs economist Tomohiro Ota wrote in a note.

Read More: Japan’s $4 Trillion to Stay Offshore After BOJ Hike: MLIV Pulse 

In China, stock gains were led by Contemporary Amperex Technology Co. Ltd. which saw its stock jump over 5% after posting full-year net income that beat estimates. Elsewhere, China’s factory output and investment grew more strongly than expected at the start of the year. Beijing has targeted an ambitious annual economic growth goal of around 5%, which is the same as 2023’s but may be harder to attain given the property sector remains a major drag. 

The data, however, is unlikely to push the yuan out of its recent tight range, torn between China’s central bank and the upcoming Fed policy meeting, according to Commonwealth Bank of Australia.  

“A potentially hawkish FOMC meeting can place upward pressure on dollar-offshore yuan” this week, CBA strategists led by Joseph Capurso wrote in a note to clients. But that “will likely be capped by the People’s Bank of China’s continued onshore yuan support at the daily fix.” 

The Fed’s policy meeting on Wednesday may dictate the direction of global stocks for the next quarter. Prior to the blackout period, chairman Jerome Powell indicated the central bank was close to having the confidence to cut, while others debated how deep, or shallow, those declines will be.  

Bond traders, meanwhile, appear to have painfully surrendered to a higher-for-longer reality. Yields on policy sensitive two-year Treasuries have climbed 11 basis points this month to 4.73%, extending last month’s gain. Swaps traders are pricing about 71 basis points of rate cuts by year-end, down from 134 basis points at the start of the year, according to data compiled by Bloomberg. 

“The Fed may have less confidence on inflation than before, but it still has confidence in the disinflation trend,” and may keep its median forecast of three cuts this year, Bank of America economists including Michael Gapen wrote in a note to clients. “This may be fanciful thinking on our part, but there are several inflation reports and plenty of time between now and June to change course if needed.” 

Elsewhere this week, the Reserve Bank of Australia is set to extend its rate pause while Bank Indonesia and the Bank of England also deliver policy decisions. Eurozone inflation data is due as well as Reddit’s initial public offering

In commodities, oil steadied on Monday after its biggest weekly advance in a month as Ukrainian attacks on Russian refineries heightened geopolitical risks. Gold edged lower while iron ore fell below $100 a ton in Singapore to its lowest level since last May.


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