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A gauge of stocks for the region rose on Monday, following on from Friday’s 1.5% gain as benchmarks in Australia, Taiwan and South Korea edged higher. Shares in Hong Kong fluctuated while those on the mainland were little changed. Japanese markets were closed for a holiday.
A semblance of calm returned after markets were ravaged early last week from fears the Federal Reserve is waiting too long to cut interest rates. The Cboe Volatility Index — Wall Street’s fear gauge — has reversed from its highest since the early days of the Covid-19 pandemic. The yen was slightly weaker against the greenback on Monday.
“The skies are not fully clear yet, but there are several reasons that suggest to us that some relatively calmer seas are ahead of us,” analysts at Nomura Holdings Inc. said in a note, citing a lessening of fears about a US recession and lower chances of a very hawkish Bank of Japan as among the grounds for optimism.
The yen surged last week as traders slashed bearish bets following the BOJ’s rate hike, forcing a negative feedback loop as investors dumped carry trades that ricocheted across markets, before ending last week little changed.
The BOJ and Fed are the biggest variables to drive trading, said Taosha Wang, a portfolio manager at Fil Asia Holdings Pte Ltd. For the US, “I don’t think the market has agreed — either a recession, which we think is excessive, or a soft landing,” she told Bloomberg Television’s Yvonne Man and David Ingles on Monday.
Elsewhere in Asia, traders will be focused on China’s retail sales and industrial production data this week to gauge whether the nation’s economy is finding traction.
China is still battling bond market speculators, with state banks selling debt to buoy yields. Sovereign yields rebounded last week after authorities intensified their fight against bond bulls. The economy needs more stimulus as the latest leading indicators point to a loss of recovery momentum around mid-year, according to Bloomberg Economics.
New Zealand’s central bank will also decide on policy this week, with the economy showing signs of entering its third recession in less than two years. Australian and New Zealand government bonds were little changed on Monday. Treasuries cash trading was shut in Asia due to the holiday in Tokyo.
Economic downturn
A tumultuous week for global bond markets headed toward calm on Friday as angst over the potential US economic downturn — which spurred a Treasury rally and brief market meltdown — faded.
The US consumer price index on Wednesday is expected to have risen 0.2% from June for both the headline figure and the so-called core gauge that excludes food and energy. The modest moves, however, may not be enough to derail the Fed from a widely anticipated interest-rate cut next month.
At the weekend, Fed Governor Michelle Bowman said she still sees upside risks for inflation and continued strength in the labor market, signaling she may not be ready to support an interest-rate decrease when US central bankers next meet in September. Money markets have fully priced a rate cut in September and about 100 basis points of easing for the year, according to swaps data compiled by Bloomberg.
In commodities, oil edged higher on Monday following a 4.5% gain last week. Some of the top US oil refiners are throttling back operations at their facilities this quarter, adding to concerns that a global glut of crude is forming. Gold was lower.
