Asian Stocks to Join Global Rally, Treasuries Rise: Markets Mixed

(Bloomberg) — Asian stocks were poised to join a global stock rally as bets that the Federal Reserve would soon begin cutting rates fueled a rush into riskier areas of the market.

Bloomberg’s Most Read

Stock futures in Japan, Australia and Hong Kong rose on Wednesday after US stocks hit new highs, pushing global stocks to a new peak.

Gains in the US were marked by a rotation into smaller stocks. The small-cap Russell 2000 index is up 12% over the past five sessions, something it hasn’t done since April 2020.

“Rotation is the name of the game,” said Andrew Brenner of NatAlliance Securities. “This is consistent with the increased perception of cut rates.”

Brenner highlighted the fact that around 4 a.m. New York time on Tuesday, Russell 2000 futures soared — while contracts on the Nasdaq 100 fell. “This means that foreign money, a lot of money, has made a very large rotation overnight,” he said.

Treasury bonds moved higher on the curve on Tuesday. The 10-year yield fell seven basis points, while the policy-sensitive two-year yield fell four. The dollar has changed little. The yen remained stable on Wednesday morning after two daily declines against the dollar. Australian and New Zealand bonds rose on Wednesday morning.

Inflation in New Zealand slowed more than expected, reaching the weakest level in three years in the second quarter.

In Asia, economic data to be released includes exports to Singapore and a monetary decision in Indonesia. Markets are closed in India and Pakistan.

Risk asset gains on Tuesday reflected growing confidence among investors that the Fed is moving toward a rate cut.

For Solita Marcelli, from UBS Global Wealth Management, if the Fed manages to significantly reduce rates in the context of a soft landing, there will be better prospects for a reacceleration in profit growth for cyclical and lower quality segments of the market.

Some Wall Street economists warn that the Fed is waiting too long to reverse course after raising interest rates to their highest level in two decades. Meanwhile, the International Monetary Fund warned that inflation in many major economies has been cooling more slowly than expected, signaling a potential risk to global growth due to higher interest rates remaining “for even longer”.

US stocks

The story continues

The KBW Bank Index, one of the most comprehensive gauges of the U.S. banking system, rose more than 3% to levels not seen in more than a year as big lenders revealed robust profits.

Bank of America Corp. gave a forecast for net interest income, its biggest source of income, which exceeded expectations. Morgan Stanley traders joined the party on Wall Street in the second quarter, even as the company’s biggest wealth deal fell short of expectations. Charles Schwab Corp. warned that it will have to shrink to protect profits.

Stock market strength has been underpinned by optimism that the economy has weathered the worst of the Fed’s tightening. In this regard, Tuesday’s better-than-estimated retail sales report was a “healthy” development, according to with Bret Kenwell of eToro. It’s better to see the Fed cut rates in the face of falling inflation than to see the central bank rush to shore up a weakened economy, he noted.

Russell 2000 earnings are bullish, but investors should be prepared for potential profit-taking in the coming sessions, according to Dan Wantrobski of Janney Montgomery Scott.

“Russell’s long-term monthly chart paints a better picture of its potential,” he noted. “We believe the Russell 2000 could return to its all-time highs as mean reversion in relative strength highlights more bandwidth for the sector against this year’s leadership” from big tech, he said.

In commodities, gold was steady after rising nearly 2% on Tuesday to a record $2,469.66 per ounce, while West Texas Intermediate remained little changed after its third daily decline on Tuesday.

Main events this week:

• Eurozone CPI, Wednesday

• US housing starts, industrial production, Wednesday

• Fed Beige Book, Wednesday

• Fed’s Thomas Barkin Speaks Wednesday

• ECB rate decision, Thursday

• U.S. Initial Unemployment Claims, Philadelphia Fed Manufacturing, Conference Board LEI, Thursday

• Fed’s Mary Daly, Lorie Logan and Michelle Bowman Speak, Thursday

• Fed’s John Williams and Raphael Bostic Speak Friday

Some of the main movements in the markets:

Actions

• S&P 500 futures were little changed as of 7:50 a.m. Tokyo time

• Nikkei 225 futures rose 0.6%

• Hang Seng futures rose 0.6%

• S&P/ASX 200 futures rose 0.7%

Coins

• The Bloomberg Dollar Spot index was little changed

• The euro was little changed at $1.0900

• The Japanese yen remained unchanged at 158.35 per dollar

• The offshore yuan was little changed at 7.2887 per dollar

Cryptocurrencies

• Bitcoin fell 0.2% to $64,593.3

• Ether fell 0.4% to $3,426.69

Titles

goods

This story was produced with help from Bloomberg Automation.

Bloomberg Businessweek Most Read

©2024 Bloomberg LP