Business Maverick

Business Maverick

Asian stocks gain as Fed rate hopes lift sentiment: markets wrap

Asian stocks gain as Fed rate hopes lift sentiment: markets wrap
A pedestrian is watching a display showing closing information of Tokyo's Nikkei Stock Average (Top, C) and global market information in Tokyo, Japan, 6 November 2020. (Photo: EPA-EFE/KIMIMASA MAYAMA)

Asian stocks eked out gains, following Wall Street’s advance on optimism the Federal Reserve will start cutting interest rates this year. The yen dropped. 

Japan’s benchmark Nikkei 225 jumped as much as 1.6% and Australian equities also advanced on Tuesday. Markets in Hong Kong and Shanghai swung between losses and gains. The yen fell after Japan’s top currency official Masato Kanda said there was no need for the government to intervene if the market is functioning properly.

Global equity markets are getting a lift as investors revise their Fed policy bets due to soft US jobs data. Beijing’s latest supportive policy stance is helping to boost Chinese shares and the onshore yuan. 

“In Asia you have higher growth and earnings potential compared to what you have in the US, valuations in Asia are a lot cheaper and currencies come with higher carry,” Ray Sharma-Ong of abrdn Plc said in a Bloomberg TV interview. Past experience also shows that in a Fed easing cycle, Asia actually outperforms, he said. 

With investors now cautiously boosting their bets for Fed easing this year, the bond market has welcomed signs of a cooling US labor market. Having slipped for four straight sessions, the yield on US 10-year Treasuries stood little changed on Tuesday. Australia’s 10-year yield was steady.

Fed Bank of Richmond president Thomas Barkin said he expects high rates to slow the economy further and cool inflation to the 2% target. His New York counterpart John Williams said eventually there will be rate cuts — but the decision on when will depend on the totality of the data.

Australia’s central bank is expected to keep its key interest rate on hold on Tuesday, while reinstating a hawkish bias to acknowledge sticky consumer prices.

The backdrop for stocks remains supportive, driven by healthy and broadening profit growth, inflation that will likely resume falling, a Fed that is more likely to cut than hike rates, and surging investment in artificial intelligence, according to David Lefkowitz at UBS Global Wealth Management in the US.

In China, sentiment got a fillip from news that the technology hub of Shenzhen joined other major cities in easing home buying rules as authorities try to revive the beleaguered real estate market.

“Improving news flow in China, an undervalued yen and crowded fund positioning in Japan suggest that Chinese markets are likely to remain in favor in the near term,” HSBC Holdings Plc strategists including Herald van der Linde wrote in a note. “As the Fed embarks on its easing cycle, which our US economist expects to happen in late 2024, it will likely be more positive for mainland China than Japan.”


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