Stocks in Asia rose Wednesday as investors weighed prospects for a de-escalation in the war in Ukraine that could reduce pressure on commodity prices, allowing inflation to ease and slowing the pace of monetary policy tightening.
A gauge of Asia Pacific shares rose for a second day, lifted by Hong Kong and China. Equities fell in Japan as the yen lifted off a six-year low and as some stocks traded without the rights to the next dividend. US and European futures wavered after the S&P 500 gained for a fourth day and the Nasdaq 100 also climbed.
Bonds got a reprieve from their recent route as hopes for progress in talks between Russia and Ukraine drove down oil prices and inflation expectations. A slide in long-end yields saw the two- to 10-year curve briefly invert – typically a signal of impending recession, though its accuracy is in doubt after years of heavy stimulus. The dollar slipped and the euro climbed to the highest in four weeks.
In Japan, bonds climbed after the Bank of Japan pledged to buy more securities than planned and include longer-dated debt. The yen’s bounce came following a meeting between the central bank governor and Prime Minister Fumio Kishida, which raised speculation that the currency’s weakness is becoming a concern.
Oil reversed a bit of its slide as investors remained circumspect about the chances of a resolution to the war. Russia said it would sharply reduce military activity near Ukraine’s capital Kyiv and its chief negotiator said Moscow would take steps to “de-escalate” the conflict. The talks failed to reach agreement on a cease-fire, however, and the Pentagon said Kyiv remains under threat.
The rally in equities globally remains fragile as the war in Ukraine drags on, and analysts are skeptical of Russia’s intentions. The Treasury yield curve’s inversion is fanning debate over the risks of a growth downturn as central banks globally begin to withdraw stimulus. Money markets in the US are pricing in two percentage points of additional interest-rate hikes this year.
“The yield curve inversion needs to be sustained before it’s a predictor of anything,” Mariann Montagne, Gradient Investments senior portfolio manager, said on Bloomberg Television. “We’ll have volatility both in the stock and the bond markets but we think that progression” on the cease-fire talks will lead to upward earnings revisions.
A lack of clarity on the cease-fire talks and supply-chain shortages will pose headwinds for the markets, she said.
Philadelphia Fed Bank President Patrick Harker said he expects a series of “deliberate, methodical” rate increases this year, but said he is open to a half-point move in May if near-term data shows more inflation.
Consumer sentiment appears resilient, as the latest US confidence data suggests solid job growth has offset Americans’ concerns over accelerating inflation for now. Government data Friday are expected to show the economy probably added close to a half million jobs in March as the unemployment rate fell to 3.7%.
Elsewhere, Chinese technology stocks pared gains after a Wall Street Journal report of new curbs in the live-streaming industry.
Some key events to watch this week:
- US GDP, Wednesday
- Richmond Fed President Thomas Barkin to speak, Wednesday
- China manufacturing, non-manufacturing PMIs, Thursday
- OPEC and non-OPEC ministerial meeting to discuss production targets, Thursday
- New York Fed President John Williams to speak, Thursday
- US jobs report, Friday
Some of the main moves in markets:
- S&P 500 futures fell 0.1% as of 3 pm in Tokyo. The S&P 500 rose 1.2%
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 1.7%
- Topix index fell 1.7%
- Australia’s S & P / ASX 200 Index added 0.7%
- Kospi index rose 0.2%
- Hang Seng Index climbed 1.2%
- Shanghai Composite Index rose 1.7%
- Euro Stoxx 50 futures were little changed
- The Japanese yen was up 121.93 per dollar, up 0.8%
- The offshore yuan was at 6.3672 per dollar
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro was at $ 1.1108, up 0.2%
- The yield on 10-year Treasuries fell four base points to 2.36%
- Australia’s 10-year bond yield fell 11 basis points to 2.79%
- West Texas Intermediate crude rose 0.9% to $ 105.17 a barrel
- Gold was at $ 1,924.46 an ounce, up 0.3%
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