Asian Stocks Eye Early Gains as Rate Cut Bets Firm: Markets Wrap

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(Bloomberg) — Asian stocks are set to gain in early trading, following US peers on Friday, as expectations for Federal Reserve rate cuts were bolstered after the central bank’s preferred measure for inflation eased. 

Equity futures in Australia, Japan and Hong Kong point to higher opens on Monday. US contracts were little changed after the S&P 500 rose 0.8% in its previous session, following a late surge amid a rotation from technology stocks to other industries. Australian bond yields edged lower, following Treasuries.

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The gain follows the best month for Asian stocks since March last month, aided by signs of stabilization in China’s economy and a weaker dollar amid bets the Fed can cut interest rates this year. But with valuations appearing stretched, markets are likely to be volatile as traders assess the outlook for central bank policy, while geopolitical tensions surrounding the Middle East and the US election simmer, according to AMP Ltd. 

“We continue to see further gains in shares this year as disinflation continues, central banks ultimately cut interest rates and recession is avoided or proves mild,” said Shane Oliver, chief economist and head of investment strategy at AMP in Sydney. “But the risks of a deeper correction beyond that seen in April have increased.” 

Oil slipped in early trading after OPEC+ extended its production cuts in efforts to bolster a fragile market. While the deal exceeded market expectations, it also rolls back those supply reductions in October, earlier than some OPEC-watchers had assumed.

Elsewhere, elections in India and Mexico are likely to set the tone in emerging markets. Indian stocks, bonds and the rupee are poised to climb on Monday after exit polls indicated a resounding victory for Prime Minister Narendra Modi’s party, while the Mexican peso was quoted higher in early trading with the polls still open. 

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Follow Bloomberg’s Mexico election live blog here for the latest results 

The dollar was steady in early trading. US Treasuries rose Friday as the Fed’s preferred measure of inflation, the core personal consumption expenditures price gauge, met estimates and posted the smallest increase this year. Inflation-adjusted consumer spending unexpectedly fell 0.1%, dragged down by a decrease in outlays for goods and softer services spending. Wage growth, the primary fuel for demand, moderated.

“While this is unlikely to be enough to justify an imminent Fed rate cut, we think recent data continue to underpin our base case soft landing scenario,” Solita Marcelli, chief investment officer for the Americas at UBS Group AG’s wealth management unit, wrote in a note. “This should allow the US central bank to start policy easing later this year, most likely at its September meeting, in our view.”

Read More: Key Engines of US Consumer Spending Are Losing Steam All at Once

Meantime, Saudi Aramco’s $12 billion share sale sold out shortly after the deal opened on Sunday, in a boon to the government that’s seeking funds to help pay for a massive economic transformation plan. While it wasn’t immediately clear how much of the demand came from overseas, the order book reflected a mix of local and foreign investors, people familiar with the matter told Bloomberg News. 

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This week, traders will be closely watching inflation prints across emerging markets including Indonesia, South Korea and Chile, as well as growth data in Australia and Europe. Economic activity data is also due in Europe ahead of the ECB’s rate decision, and the US jobs report is released on Friday.

Some key events this week: 

• China Caixin manufacturing PMI, Monday
• Indonesia CPI, Monday
• India S&P Global Manufacturing PMI, Monday
• Eurozone S&P Global Manufacturing PMI, Monday
• UK S&P Global / CIPS Manufacturing PMI, Monday
• US construction spending, ISM Manufacturing, Monday
• International Atomic Energy Agency board meets in Vienna, Monday
• South Korea CPI, Tuesday
• Germany unemployment, Tuesday
• South Africa GDP, Tuesday
• Brazil GDP, Tuesday
• US factory orders, JOLTS, Tuesday
• Australia GDP, Wednesday
• South Korea GDP, Wednesday
• China Caixin services PMI, Wednesday
• Eurozone S&P Global Services PMI, PPI, Wednesday
• Canada rate decision, Wednesday
• Eurozone retail sales, ECB rate decision, Thursday
• China trade, forex reserves, Friday
• Eurozone GDP, Friday
• Mexico CPI, Friday
• Chile copper exports, trade, CPI, Friday
• US unemployment rate, nonfarm payrolls, wholesale inventories, Friday

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Some of the main moves in markets: 

Stocks

• S&P 500 futures were little changed as of 8:29 a.m. Tokyo time
• Hang Seng futures rose 0.4%
• S&P/ASX 200 futures rose 0.5%
• Nikkei 225 futures rose 0.6%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0851
• The Japanese yen was little changed at 157.29 per dollar
• The offshore yuan was little changed at 7.2625 per dollar
• The Australian dollar was little changed at $0.6654

Bonds

• Australia’s 10-year yield declined two basis points to 4.39%

Cryptocurrencies

• Bitcoin was little changed at $67,862.18
• Ether was little changed at $3,785.12

Commodities

• West Texas Intermediate crude fell 0.5% to $76.63 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

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