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Hong Kong stocks jumped after a two-session holiday, tracking Monday’s gains in their mainland counterparts. Xiaomi Corp. contributed the most to the Hong Kong benchmark’s advance following its debut electric vehicle.
Japanese shares also climbed, helped by a soft yen. The currency steadied after weakening on Monday against the greenback to around the lowest levels of the year. The decline has increased the risk that Japanese officials may intervene in the market.
US equity futures inched lower after the S&P 500 fell 0.2% on Monday while the Nasdaq rose by the same margin.
In the bond market, Australian and New Zealand yields climbed, echoing moves in Treasuries. US bonds steadied in Asian trading, after falling across the curve on Monday — with 10-year yields climbing over 10 basis points — as manufacturing unexpectedly expanded for the first time since September 2022 and input costs climbed.
Following the report, the amount of Fed easing priced into swap contracts for this year slid to around 65 basis points — less than forecast.
“Investors are indeed front-running the possibility of yet another hawkish pivot from the Fed,” said Jose Torres at Interactive Brokers. “The Fed’s first rate cut may arrive in the second half of the year after all — with probabilities of a reduction this June inching closer to coin-flip odds.”
Later this week, data is expected to show employment gains continued in March while wage growth moderated. Fed chair Jerome Powell — who is set to speak on Wednesday — said on Friday that officials are awaiting more evidence prices are contained, adding that it wouldn’t be appropriate to lower rates until officials are sure inflation is in check.
While the market appears “content” to point toward the manufacturing release as the trigger for the move in Treasuries, there was already a bond selloff underway prior to the headlines, said Ian Lyngen and Vail Hartman at BMO Capital Markets.
“Monday’s price action in the futures space suggests the pendulum of sentiment in US rates may be shifting toward the hawkish direction — although it goes without saying there remains ample room for expectations to meaningfully shift as more data is revealed,” they noted.
The Institute for Supply Management’s manufacturing gauge rose to 50.3 last month. While barely above the level of 50 that separates expansion and contraction, it halted 16 consecutive months of shrinking activity. At the same time, the group’s index of prices paid rose to 55.8, the highest since July 2022.
Perhaps “most troubling” was the jump in the prices paid, according to Michael Shaoul at Marketfield Asset Management. “This indicates that some of the ‘transitory’ relief from reflationary forces is starting to reverse.”
In Asia, data set for release on Tuesday includes PMIs for India. Australia’s central bank will switch to a new system for the implementation of monetary policy as passive quantitative tightening leads to a decline in reserves in the banking system, RBA assistant governor Christopher Kent said on Tuesday.
In commodities, oil held near a five-month high with heightened geopolitical risks in the Middle East and tighter supply from Mexico helping to buoy prices. Gold pared gains after hitting an all-time high on Monday.