Asian stocks echo US rally on soft landing hopes

MELBOURNE – Equities in Asia opened higher on Monday following a rally on Wall Street as investors shook off worries over

the Bank of Japan’s (BOJ) policy tweak

and embraced the latest US economic data.

Shares in Japan and Australia rose while futures contracts for Hong Kong traded higher after the Golden Dragon Index of US-traded Chinese stocks gained 7 per cent on Friday.

The Nasdaq 100 climbed almost 2 per cent, with the S&P 500 advancing 1 per cent.

Meta Platforms and Tesla each climbed more than 4 per cent, while Intel rallied about 6.5 per cent on a bullish sales forecast. Bond yields fell.

Key gauges of inflation showed further easing while Americans grew more optimistic about the economy, with investors wagering that it is neither running too hot nor too cold.

US Federal Reserve Bank of Minneapolis president Neel Kashkari described the inflation outlook as “quite positive”, despite the likelihood of job losses and slower growth.

The dollar traded lower against peers including the yen, the euro and the Australian currency.

The yen’s gain came after it snapped a four-day rally on Friday, when the BOJ adjusted policy to give bond yields more room to rise. 

Currency and bond markets face the risk of continued volatility as investors weigh whether rate hikes from the US Federal Reserve and European Central Bank last week mark the end of their tightening cycles.

The Australian dollar and British pound are likely to remain in the spotlight with their central banks slated to meet on Tuesday and Thursday, respectively.

“The RBA has delivered a lot of rate hikes already,” said Moody’s Analytics senior economist Katrina Ell. “Our expectation is they will hold tomorrow, but it’s likely they will have to deliver another rate hike just to keep inflation on that entrenched downtrend.”

Manufacturing and non-manufacturing purchasing managers’ index data from China will be in focus on Monday, with economists projecting more weakness in factory activity.

More government efforts to shore up the Chinese economy emerged on Friday, including a plan to boost consumer industries and steps to grow an exchange dedicated to helping small companies get access to funds.

Japan’s industrial production rebounded in June on Monday amid a resilient economic recovery, while another report showed that the nation’s retail sales fell 0.4 per cent, compared with a 0.7 per cent decline forecast by analysts.

On Friday, BOJ Governor Kazuo Ueda said the central bank would allow yields to rise above a ceiling it now calls a point of reference.

That paves the way for a future normalisation of policy that has implications for a wide range of global assets and markets heavily exposed to Japanese money.

Yields on 10-year Japanese government bonds jumped to their highest in nine years as investors speculated whether this tweak was a precursor to more drastic changes for Japan’s ultra-easy monetary policy.

Any significant adjustment to the yield curve control policy would have implications for the Treasury market given that Japan households are one of the largest buyers of US debt, according to 22V Research founder Dennis DeBusschere.

The rationale is: If yields in Japan become more attractive, there could be selling of US government bonds to buy the Asian nation’s debt. 

Elsewhere in markets, oil was slightly lower Monday but headed for a monthly gain, supported by signs the market is tightening amid estimates that crude demand is running at a record clip just as Opec+ cuts back supplies. BLOOMBERG