Asian stocks rose on the Fed’s bets on interest rates, and China’s reopening to lift the yuan

  • US stock futures rose, Nikkei futures rose
  • Hopes that the US CPI report will evidence smaller Fed increases
  • Earnings season begins with the big banks on Friday
  • Dollar nurses yuan losses at the highest level since mid-August

SYDNEY (Reuters) – Asian stocks rose on Monday as hopes of a softer US interest rate hike and China’s border opening boosted the outlook for the global economy.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) It rose 2.0%, to a five-month high, with South Korean stocks (.KS11) Gain 2.2%.

Chinese blue chips (.CSI300) It added 0.7%, while Hong Kong stocks rose (.HSI) jumped 1.4%. The Chinese Yuan also rose to its highest level since mid-August below 6.8000.

Japanese Nikkei index (.N225) They were closed for a holiday but futures traded at 26,215, compared to Friday’s cash close of 25,973.

S&P 500 futures rose 0.2% and the Nasdaq 0.3%. EUROSTOXX 50 futures rose 0.6%, while FTSE futures rose 0.3%.

Earnings season kicks off this week with major US banks, as the Street fears there will be no annual growth at all in total earnings.

“Excluding energy, the S&P 500 EPS (earnings per share) is expected to decline by 5%, driven by 134 basis points of margin pressure,” analysts at Goldman Sachs wrote. Going into reporting season, earnings review sentiment is negative for the date.

“We expect further downward revisions to the 2023 earnings per share outlook,” they added. “Reopening China is one upside risk for 2023 EPS, but margin pressures, taxation and recession are bigger downside risks.”

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A sign of pressure emerged from reports that Goldman Sachs will begin cutting thousands of jobs across the company from Wednesday, as it prepares for a tough economic environment. Read more

In Asia, Beijing has now opened borders that have been virtually closed since the start of the COVID-19 pandemic, allowing traffic to increase across the country. Read more

Bank of America analyst Winnie Wu expects China’s economy, the world’s second-largest, to benefit from a cyclical recovery in 2023 and expects the market to pick up from both multiple expansion and 10% EPS growth.

Nutrition fade

Sentiment on Wall Street got a boost last week from a moderate mix of strong payroll gains in the US and slower wage growth, along with a sharp decline in service sector activity. The market reduced its bets on a Fed rate hike.

Fed fund futures now point to a 25% chance of a half point hike in February, down from about 50% a month ago.

That will make investors more sensitive to anything Federal Reserve Chairman Jerome Powell might say at a central bank conference in Stockholm on Tuesday.

It also adds importance to US Consumer Price Index (CPI) data on Thursday, which is expected to show annual inflation slowing to a 15-month low of 6.5% and the core rate slipping to 5.7%.

“We at NatWest have a lower-than-consensus CPI forecast, and if correct that would likely boost market prices at 25 basis points versus 50 basis points,” said NatWest Markets analyst John Briggs.

“In context, it should be seen as the Fed still likely to raise several times and then keep interest rates high until inflation is guaranteed to subside — for us that means a rate of 5-5.25% on the funds.”

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Mixed data on Friday saw the US 10-year yield drop sharply by 15 basis points to 3.57%, while pushing the US dollar lower across the board.

Early Monday, the euro was flat at $1.0673, after rebounding from a low of $1.0482 on Friday. The dollar fell to 131.48 yen, away from last week’s peak of 134.78, while its index settled at 103.600.

The Brazilian real has not yet been traded after hundreds of supporters of former far-right President Jair Bolsonaro were arrested after invading the country’s Congress, presidential palace and supreme court. Read more

The dollar’s decline and yields have been a boon for gold, lifting it to an eight-month high of around $1,877 an ounce.

Oil prices stabilized after falling nearly 8% last week amid concerns about demand.

Brent crude rose 80 cents to $79.37 a barrel, while US crude rose 78 cents to $74.55 a barrel.

Reporting from Wayne Cole. Editing by Bradley Perrett and Christopher Cushing

Our standards: Thomson Reuters Trust Principles.

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