Stocks in Asia Advance Ahead of Heavy Eco Week: Markets Wrap

(Bloomberg) -- Asian stocks gained in early trading as investors ready for a week that includes key US inflation data and the Federal Reserve’s final rate decision of the year among multiple central bank meetings.

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Japanese benchmark indexes jumped at least 1% as Australian and Korean shares also gained. Futures contracts for US shares were little changed after Wall Street rose Friday to notch a sixth straight weekly gain. Treasury yields inched higher in Asian trading, extending gains from Friday after hotter than expected US jobs data.

Traders were forced to trim their bets on rate cuts in 2024 after nonfarm payrolls increased 199,000 last month, the unemployment rate fell to 3.7% and monthly wage growth topped estimates. Consumer sentiment also rebounded.

US inflation data on Tuesday ahead of the Federal Reserve’s policy meeting Wednesday are now critical to solidify bets the central bank will aggressively cut rates next year and set the tone for markets into 2024.

“The run of data that preceded Friday’s non-farm payrolls data has mostly been softer, and equity markets appeared willing to overlook NFP as an outlier,” Tony Sycamore, an analyst at IG Australia in Sydney wrote in a note. “However, the equity market is unlikely to be so forgiving if it gets another fright this week from either CPI, the FOMC meeting, or retail sales.”

In Asia, Chinese stocks and the yuan will be front of mind after China’s consumer prices fell 0.5% last month from a year earlier, the steepest pace in three years. At the same time, producer costs dropped even further into negative territory, underscoring the challenges facing the economic recovery.

“China’s deflation situation is deepening with the triple whammy from domestic food prices, international oil price corrections and weak domestic demand,” Citigroup economists led by Xinyu Ji wrote in a note to clients. “There is no time for policy hesitation to prevent a vicious loop between deflation, confidence and activities” and there’s rising risk of an imminent reserve-requirement ratio and/or rate cuts, they wrote.

This week, traders will also be keeping an eye on policy decisions at the European Central Bank and Bank of England, while jobs data in Australia and economic activity gauges in Europe are also due.

“Everything is transitory and so was the inflation shock in Europe. It is abating fast due to its supply-side nature, forceful monetary policy reaction and a stagnant economy,” Barclays Bank Plc economists led by Christian Keller wrote in a note to clients. “The ECB is likely to acknowledge this in its new forecasts, but likely erring on the side of caution in its communication.”

Read More: Skewed ECB Rate-Cut Bets Are at Risk No Matter What Lagarde Says

Fed is Done

Softening inflation and employment data in the past month have convinced investors that the Fed is done raising interest rates and ignited bets that cuts of at least 125 basis points were in store over the next 12 months. Traders scaled back those wagers to about 110 basis points of easing after the nonfarm payrolls data.

“People saying recession need to have their heads examined,” Neil Dutta at Renaissance Macro Research said on Friday.

The S&P 500 closed last week with its longest winning run since November 2019, while Wall Street’s “fear gauge” — the VIX — came back to pre-pandemic levels. US two-year yields jumped 13 basis points to 4.72%. Swap contracts now show a 40% probability of a March rate cut — from over 50% prior to the economic data.

Read More: Decisive Moment Arrives With $4 Trillion Stocks Rally at Stake

Elsewhere, oil was steady after it bounced back Friday on the US jobs report and plans to refill the Strategic Petroleum Reserve, but still closed out the longest weekly losing streak since late 2018 amid concern about an impending global glut.

Key events this week:

Argentina new President Javier Milei expected to call congress into extraordinary session, Monday
UK’s CBI publishes latest economic forecast, Monday
RBA Governor Michele Bullock speaks, Tuesday
Japan producer prices, Tuesday
India inflation, Tuesday
Brazil inflation, Tuesday
UK unemployment, Tuesday
US inflation, Tuesday
Eurozone industrial production, Wednesday
South Africa inflation, Wednesday
Brazil rate decision, Wednesday
Federal Reserve rate decision, Wednesday
Australian unemployment, Thursday
New Zealand GDP, Thursday
Philippines rate decision, Thursday
Taiwan rate decision, Thursday
ECB rate decision, Thursday
BOE rate decision, Thursday
Norway rate decision, Thursday
US retail sales, Thursday
China 1-year MLF, Friday
China retail sales, industrial production and jobless rate, Friday
Eurozone PMIs, Friday
UK manufacturing PMI, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 9:27 a.m. Tokyo time. S&P 500 rose 0.4% on Friday
Nasdaq 100 futures little changed. The Nasdaq 100 rose 0.4% on Friday
Hang Seng futures fell 0.2%
Japan’s Topix rose 1.5%
Australia’s S&P/ASX 200 rose 0.2%
Euro Stoxx 50 futures rose 1.1%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0768
The Japanese yen fell 0.2% to 145.19 per dollar
The offshore yuan was little changed at 7.1864 per dollar
The Australian dollar was little changed at $0.6577

Cryptocurrencies

Bitcoin fell 0.1% to $43,750.39
Ether fell 0.3% to $2,352.15

Bonds

The yield on 10-year Treasuries advanced two basis points to 4.24%
Japan’s 10-year yield advanced three basis points to 0.800%
Australia’s 10-year yield advanced six basis points to 4.35%

Commodities

West Texas Intermediate crude rose 0.1% to $71.33 a barrel
Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.