Caution for Asian Stocks Before Central Bank Moves: Markets Wrap

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(Bloomberg) — Asian stocks are set for a cautious open Tuesday amid higher bond yields and investor focus on central bank decisions and the pace of further interest rate hikes.

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Equity futures were higher for Hong Kong while a gauge of US-listed Chinese stocks fell. Contracts were little changed in Japan and Australia following a drop in the S&P 500, which was weighed down by big tech. Energy shares whipsawed on news that President Joe Biden will call on Congress to consider tax penalties for producers accruing record profits. 

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Australian bond yields rose while the nation’s currency held recent losses ahead of a projected 25-basis-points rate hike by the central bank later Tuesday. The likely small increase in policy rate contrasts with expectations for another jumbo hike from the Federal Reserve on Wednesday.

Treasury yields sold off across the curve on Monday, sending two-year US yields to around 4.5%. Swap markets are pricing in a 75-basis-point hike this week amid the Fed’s most-aggressive tightening campaign in four decades.

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Still, strategists including JPMorgan Chase & Co.’s Marko Kolanovic believe the Fed’s aggressive hiking is nearing an end, providing the prospect of relief for markets. The US will likely raise rates by 50 basis points in December and pause after one more 25-basis-point hike in the first quarter, he said. 

Indicators such as the inversion of the yield curve between 10-year and three-month Treasuries “all support a Fed pivot sooner rather than later,” wrote Morgan Stanley’s Michael Wilson.

Looking ahead, Bespoke Investment Group said November has historically been one of the strongest months of the year for US stocks. The S&P 500 has experienced an average gain of 0.82% with positive returns 69% of the time, according to data going back to 1983. Over the last 10 years, the gauge saw a median advance of 1.26% and gains nine out of 10 times.

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Traders in Asia will be watching Caixin China PMI figures after a separate data release Monday showed the nation’s factory and services activity contracted in October, sending ripples though global markets.

In currency markets, the yen is back within reach of the 150 level versus the dollar. Japan spent a record 6.3 trillion yen ($42 billion) in October to counter the yen’s sharp slide against the dollar, as it tried to limit speculative moves adding to pressure on the currency.

Key events this week:

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Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

• West Texas Intermediate crude fell 0.3% to $86.29 a barrel
• Spot gold was little changed