Asia stocks echo US rally eyes on US Fed meet
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Equities advanced in Australia and South Korea, while Hong Kong equity futures also rose. Japanese markets are closed for a holiday.
Stocks in Asia rose after US equities touched fresh highs and bonds also rallied as traders brace for the latest monetary policy decision from the Federal Reserve.
Equities advanced in Australia and South Korea, while Hong Kong equity futures also rose. Japanese markets are closed for a holiday.
US equity futures were little changed after Wall Street closed higher, spurred on by a rebound in the “Magnificent Seven” cohort of tech megacaps. Nvidia Corp.’s new chips helped support the rally.
Treasuries pushed higher Tuesday, with a $13 billion sale of 20-year bonds drawing strong demand. Asia trading in Treasuries will be closed Wednesday given the holiday in Japan.
Despite the Tuesday bond gains, traders have stepped up short bets in anticipation of a selloff ahead of the Fed’s monetary decision due later Wednesday. The Bloomberg dollar index climbed for a fourth day, strengthening against most major currencies.
The Fed is expected to hold rates steady for a fifth consecutive meeting and attention will shift to the central bank’s projections in the so-called dot plot.
The summary of economic projections will reveal whether still-robust data are giving officials cause to dial back intentions to cut rates — or if their outlook for three reductions this year remains on track.
“If the rise in yields and the dollar can continue comes crucially down to whether the Fed validates the hawkish narrative or not,” said Win Thin and Elias Haddad at Brown Brothers Harriman. “If Jerome Powell can stick to the hawkish script, the message will remain consistent and market reaction will likely be limited. If he veers from the script and delivers a dovish tilt, then market reaction will likely be quite violent.”
In Asia, data set for release includes China loan prime rate settings, export orders in Taiwan and a monetary policy decision in Indonesia.
In China, the property-debt crisis has entered a new stage, as tensions have increasingly shifted to developers’ court battles with creditors over debt restructuring plans. Separately, Hong Kong fast-tracked into law domestic security legislation, prompting fresh warnings from the US, European Union and UK about open discussion in the global finance hub.
The yen extended losses Wednesday after trading at a 2024 low against the greenback in its previous session as the Bank of Japan’s decision to end its negative interest rate policy failed to spur fresh support for the currency. Investors and economists are divided over how long it will take before the central bank opts for another hike.
US Federal Reserve
In addition to hints about upcoming policy moves, the Fed will also begin in-depth discussions about its balance sheet this week, including when and how to slow the pace at which the central bank drains excess cash from the financial system.
Since 2022, the Fed has been letting as much as $60 billion in Treasuries and as much as $35 billion in agency-backed mortgage debt mature each month and roll off its balance sheet, a process known as quantitative tightening.
“In our view, commentary around plans for the Fed’s balance sheet will be at least as important as remarks around the potential timing of rate cuts,” said Chris Senyek at Wolfe Research. “While we don’t expect an official QT tapering announcement until the May meeting, we’re hoping for color around the potential timing and pace of the wind down.”
Oil edged lower after a two-day rally, while gold steadied after Tuesday gains. Bitcoin fell against the dollar for a third session in a further retreat from its recent highs and traded at around $62,000.
US Stocks
Wall Street is divided on whether the US stock market’s meteoric rise has gone too far, too fast. The latest Bank of America fund manager survey showed that investors were split on whether or not artificial intelligence stocks are in a bubble — with 40% saying “yes” and 45% answering “no.” The S&P 500 closed just shy of 5,180.
Investors should buy the dip in stocks in the case of pullbacks amid a backdrop of good economic growth and inflation normalization, according to Goldman Sachs Group Inc. strategists led by Christian Mueller-Glissmann.
“While equity momentum has somewhat supported broader risk appetite, we see limited implications of a continued reversal barring a material US rate shock,” they said.
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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow