(Bloomberg) – Asian stocks opened higher on Tuesday after a rebound in the final hour of New York trading as investors continue to weigh the market impact of outsized rate hikes by the Federal Reserve.
Japan led gains with a jump of more than 1% after a holiday. US futures edged higher. The Nasdaq Golden Dragon Index of US-listed Chinese stocks rose ahead of the premium credit data due this morning.
10-year government bond yields oscillated by 3.5%, while the more politically sensitive two-year rate hit its highest level since 2007 amid fears that excessive monetary tightening would increase the likelihood of a hard landing. The dollar slipped slightly.
Traders are betting the Fed will rise 75 basis points on Wednesday, head signal rates above 4% and then pause. The long-hold strategy is rooted in the idea that the central bank would avoid the disastrous stop-go policy of the 1970s that allowed inflation to spiral out of control.
Swap contracts, which forecast interest rates for the next two years, are now peaking at around 4.5% in March 2023 – a full point higher than expected after the last session in July.
Strategists at JPMorgan Chase & Co. estimate the Fed will hike rates to 4.25% by early next year. “We expect central banks to tighten and supply chain pressure to ease to dampen job growth and core inflation. In turn, we expect this to allow the Fed and other central banks to pause in 1H23,” strategists including Marko Kolanovic and Nikolaos Panigirtzoglou wrote in a note on Monday.
A proven harbinger of an economic slowdown, short-term US interest rates have outperformed longer-dated yields for months. The MLIV Pulse poll, which received 737 responses, showed that the majority of participants expect a deeper inversion. Some believe it will reach levels last seen in the early 1980s, when Paul Volcker ratcheted up borrowing costs to break the backbone of hyperinflation.
Elsewhere, bitcoin remained below the $20,000 mark. Oil rose around $86 a barrel and gold remained stable.
The majority of MLIV survey participants say it’s best to bet on dollar gains, and 44% prefer to sell stocks.
Important events this week:
- US housing construction begins on Tuesday
- EIA crude oil inventory report, Wednesday
- US Existing Home Sales, Wednesday
- Federal Reserve decision followed by press conference with Chairman Jerome Powell, Wednesday
- Bank of Japan monetary policy decision, Thursday
- The Bank of England rate decision on Thursday
- US Conference Board benchmark index, Initial Jobless Claims, Thursday
Some of the key movements in the markets:
- S&P 500 futures were up 0.4% as of 9:13 am in Tokyo. The S&P 500 rose 0.7%
- Nasdaq 100 futures gained 0.5%. The Nasdaq 100 rose 0.8%
- Japan Topix Index up 0.9%
- South Korea’s Kospi index gained 1%
- Australia’s S&P/ASX 200 index rose 1.1%
- Hong Kong’s Hang Seng futures rose 0.6%
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.3% to $1.0049
- The Japanese yen rose 0.1% to 143.03 per dollar
- The 10-year government bond yield fell about a basis point to 3.48%
- Australia’s 10-year yield was 3.69%
- West Texas Intermediate crude was up 0.3% to $86.01 a barrel
- Gold was at $1,678.40 an ounce
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