Pedestrians along Wall Street near the New York Stock Exchange (NYSE) in New York, U.S., on Monday, June 27, 2022. (Photo: Michael Nagle/Bloomberg) Equity benchmarks gained across the region after the S&P 500 and Treasury yields both rose on Friday as traders trimmed bets on Federal Reserve interest-rate cuts. US 10-year yields hovered about three basis points below key 4% threshold in Asian trading.
Trading is being shaped by signs of US economic resilience, after US employers added the most jobs in six months in September. Wagers on a “no landing” scenario — where growth momentum remains intact and inflation reignites — stand to boost the dollar while triggering a drop in Treasuries and other haven assets. One key test for the rally will be on Tuesday when mainland China markets reopen after a week-long holiday.
While a US recession is possible, it’s not likely and “given the jobs report from Friday, that probability has become lower yet still”, said Vikas Pershad, a fund manager at M&G Investments, speaking on Bloomberg Television. “We’re not surprised there has been a rally in Chinese equities, we have added significant capital to China throughout the year.”
Chinese authorities have announced a number of stimulus measures over the past two weeks. Officials from the National Development and Reform Commission said on the weekend they will hold a briefing on Tuesday on implementing incremental economic policies.
While Chinese shares have skyrocketed since late-September, firms such as Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc. are among those viewing the rebound with scepticism. There have been a number of false dawns before.
Beijing will need to use its fiscal firepower to arrest the housing-market slump and also stimulate private consumption, which “depends on business confidence and animal spirits in the private sector,” said Qian Wang, chief economist for Asia Pacific at Vanguard Group Inc.
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Elsewhere in Asia, New Zealand bonds fell less than Treasuries as markets anticipate the nation’s central bank will cut interest rates by 50 basis points on Wednesday. The yen gained against the dollar, reversing a three-day slide.
The Bank of Korea is also due to hold a rate decision this week. Bloomberg Economics expects a 25-basis-point cut on 11 October as inflation slows and tighter regulations start cooling the housing market.
Oil drifted lower as traders weighed Israel’s potential retaliation against Iran for a missile attack last week, with President Joe Biden discouraging a strike on Tehran’s crude fields.
This week, Germany is expected to downgrade its growth outlook while a slew of inflation readings in emerging markets are due. Minutes from the Fed’s September policy meeting will also be released as well as the September CPI print before the start of earnings season.