(Bloomberg) — Asian stocks advanced and the yen strengthened to a three-week high as investors took positions in anticipation of the Federal Reserve cutting US interest rates from next month.
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Shares in Australia and Hong Kong climbed on Monday, benefitting from Chair Jerome Powell’s Jackson Hole speech, when he said the “time has come” to pivot to monetary easing. The Fed’s dovish tilt also lifted the yen against the dollar, as Asian-domiciled funds added to existing short positions on the greenback. Japanese stocks declined, while contracts for US equities were steady.
Haven buying in response to rising tensions in the Middle East was an additional driver for currencies. Oil advanced 0.7% as the region braced for escalating conflict after an Israeli strike on Hezbollah targets in southern Lebanon.
“It should be risk-on,” said Chamath De Silva, head of fixed income at Betashares Holdings in Sydney. “Powell has confirmed that we’ll shortly be entering an easing cycle and that the fight against inflation is done, so I expect a bit of an everything rally, stocks and bonds both performing well.”
The fall in Japanese stocks were led by exporters, with the benchmark Topix heading for its first decline in three days. The yen strengthened amid the geopolitical tensions and after Powell cemented expectations of an imminent interest-rate cut.
“The volatility of the yen against the dollar is still quite high, and Japanese equities have continued to move in line with it,” said Hitoshi Asaoka, a strategist at Asset Management One Co.
The prospect of lower US borrowing costs has pushed the yield on 10-year US Treasuries lower in recent sessions. It slipped two basis points to 3.79% on Monday.
Meanwhile, the Bloomberg Asia Dollar Index kicked off the week by advancing to its highest since January. The Korean won climbed, while Singapore’s dollar advanced to its strongest in almost a decade as traders weighed the difference between the local monetary authority’s relatively hawkish policy outlook compared with that of the Fed.
“My view is that the US is heading towards a soft landing” and Asian exports are doing well, said Khoon Goh, head of Asia research at ANZ Group Holdings Ltd. “I think we’re set to see a strong rally, rebound in Asian currencies during this Fed easing cycle.”
China MLF
The People’s Bank of China left the rate on its one-year policy loans, or the medium-term lending facility, at 2.3%, after a slashing the rate by 20 basis points in July. The PBOC has signaled that it’s de-emphasizing the medium-term lending facility’s role as a policy tool, while elevating the seven-day reverse repurchase rate to greater prominence.
Authorities in China have also initiated stress tests with financial institutions on their bond investments, to make sure they can handle any market volatility should a record-breaking rally reverse, according to state-run media.
Sinopec, China’s top oil refiner, reported a marginal increase in first-half profit as a better performance from its upstream operations offset weakness in refining and petrochemicals.
Elsewhere, gold steadied near a record high after Powell affirmed expectations of cuts. The precious metal has surged more than 20% this year in a blistering rally driven by Fed hopes, haven demand due to geopolitical risks, as well as buying from central banks and Asian consumers.
Key events this week:
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Singapore industrial production, Monday
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US durable goods, Monday
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China industrial profits, Tuesday
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Germany GDP, Tuesday
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Hong Kong trade, Tuesday
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Australia CPI, Wednesday,
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Nvidia Corp. earnings, Wednesday
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US GDP, Initial Jobless Claims Thursday
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US personal income, spending, PCE price data, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 10:32 a.m. Tokyo time
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Nikkei 225 futures (OSE) fell 1.1%
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Japan’s Topix fell 1%
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Australia’s S&P/ASX 200 rose 0.7%
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Hong Kong’s Hang Seng rose 0.9%
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The Shanghai Composite was little changed
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Euro Stoxx 50 futures fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1197
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The Japanese yen rose 0.5% to 143.65 per dollar
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The offshore yuan was little changed at 7.1113 per dollar
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The Australian dollar was little changed at $0.6793
Cryptocurrencies
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Bitcoin fell 0.2% to $64,103.45
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Ether fell 0.7% to $2,753.37
Bonds
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The yield on 10-year Treasuries declined two basis points to 3.78%
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Japan’s 10-year yield declined 2.5 basis points to 0.875%
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Australia’s 10-year yield declined five basis points to 3.87%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Georgina McKay.
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