Business Maverick

Business Maverick

Asian stocks rise after US peers hit fresh record: markets wrap

Asian stocks rise after US peers hit fresh record: markets wrap
A public screen displays the Shenzhen Stock Exchange and the Hang Seng Index figures in Shanghai, China, on Monday, 7 February 2022. (Photo: Qilai Shen/Bloomberg via Getty Images)

Asian equities rose on Thursday after a gain in US technology shares, while the dollar came under pressure amid a reassessment of bets on interest-rate cuts.

Shares in Hong Kong and mainland China climbed at the open, while those in Japan and Australia also gained. Contracts for US equities also advanced after the S&P 500 notched its 25th record close this year. Nvidia Corp. — the poster child of the artificial-intelligence frenzy — led a rally in the “Magnificent Seven” mega caps to top $3-trillion in value. 

Treasury yields ticked higher Thursday after falling in the previous session with markets almost fully pricing in two Federal Reserve rate cuts in 2024. The dollar retreated as a rate cut in Canada increased the focus on the policy path from the Federal Reserve. The yen recovered from an overnight selloff in what has been a volatile week for the currency thanks to its role in emerging market carry trades. 

India’s stock futures gained after Indian Prime Minister Narendra Modi won crucial backing from two key allies in his coalition, allowing him to form a government and extend his time in power.

“Asian markets will be supported by the fresh record highs seen on major US indices overnight, and sentiment will also be positive as India election shock wavers,” said Charu Chanana, head of FX strategy at Saxo Markets. “Lower US yields and an upbeat risk sentiment is pushing the dollar lower.”

As investors awaited this week’s US jobs report, a private payrolls reading on Wednesday showed hiring at companies grew at the slowest pace since the start of the year. Meanwhile, the services sector expanded by the most in nine months, powered by the largest monthly gain in a measure of business activity since 2021.

The loonie rebounded on Thursday after falling in its previous session. The Bank of Canada became the first Group of Seven central bank to kick off an easing cycle, cutting interest rates on Wednesday and signalling more may follow. 

The euro slightly strengthened ahead of the European Central Bank’s policy decision. While policymakers are widely expected to cut rates, traders will be looking for guidance on the path forward, notably from President Christine Lagarde at the press briefing.

In commodities, oil clawed back some losses for a second session with technical support after OPEC+’s plan to return barrels to the market sparked a selloff at the start of the week. Meanwhile, Saudi Aramco lowered prices for all of its oil to Asia next month, the first reduction since February, amid concerns over the strength of demand in its biggest market.

Wall of money

Goldman Sachs Group’s Scott Rubner noted a “wall of money” from passive equity allocations will pour into the stock market in early July, setting up a continuing rally through the early summer.

Since 1928, the first 15 days of July have been the best two-week trading period of the year for equities, and they tend to fade after 17 July, according to Rubner. The S&P 500 has been positive for nine straight Julys, posting an average return of 3.7%. The Nasdaq 100 has an even better record, posting gains in 16 straight Julys, with an average return of 4.6%, he noted. 

With earnings season basically over, the focus now turns back to the macro data — and that may impact stocks near-term, according to Gillian Wolff at Bloomberg Intelligence.

The Bloomberg Intelligence Market Pulse Index, a sentiment gauge that acts as a contrarian signal, advanced within striking distance of “manic” territory last month. It’s a rare sign that has typically tempered US stock returns in the short-run. In the three months following a manic reading, the Russell 3000 Index has gained an average 1.7%, compared with 9.1% after panic.

With the Fed widely expected to stay on hold next week, the focus of the meeting will be the new Summary of Economic Projections. Back in March, Fed officials maintained their outlook for three rate cuts in 2024.

“The ‘dots’ are likely to cluster around one or two interest rate cuts this year,” said Stephen Brown at Capital Economics. “Nevertheless, as inflation falls a bit faster than officials expect and GDP growth disappoints, our base case remains that the Fed will cut in September.”

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