Asian equities index edges up with Japan tailwind: Markets wrap

A gauge of Asian stocks headed for its first advance this week as a rally in Japanese shares provided a counterweight to global markets facing the prospect of further interest rate hikes from the Federal Reserve.

A modest 0.5% advance for Japan’s Topix index on Thursday added to a string of gains that’s taken the benchmark to the highest level since 1990. Investors have warmed to corporate reforms, rising profitability and the return of inflation to Japan. Goldman Sachs Group Inc. analysts are among those who are upbeat on Japan, forecasting the Topix to rise about 8% from its current level in 12 months.

South Korean stocks also ticked higher, Australian shares dropped and markets were closed for holidays in Hong Kong, mainland China and Taiwan, reducing activity in region.

Futures contracts for the S&P 500 and Nasdaq 100 edged lower after after the two benchmarks fell for a third consecutive session Wednesday. Investors are rethinking the bullish spirits unleashed by last week’s Fed rate pause after Chair Jerome Powell underscored the need to tame inflation during his semi-annual report to Congress on Thursday.

Powell warned that higher rates were needed and two more rate hikes this year was “a pretty good guess.” Separately, Atlanta Fed President Raphael Bostic, who isn’t among officials voting on rates this year, said he supported holding the central bank’s benchmark. Chicago Fed chief Austan Goolsbee, who does vote in 2023, said the decision to hold rates steady last week was a “close call.”

“The markets are out of step with the inflation narrative,” said Lucy Meagher, an investment adviser for Evans and Partners, who sees equities in countries such as Australia and the US as too high given rates risks.

Treasury yields were broadly flat in Asian trading after shorter maturity yields rose as Powell’s signal of higher rates fanned recession worries. The rise in short-dated yields pushed the inversion of a key segment of the yield curve to a full percentage point for the first time since March.

Australia’s 10-year yield fell three basis points, while New Zealand’s yield of the same maturity moved four basis points higher.

The yen strengthened slightly but remained close to 142 per dollar. The Bloomberg dollar index was little changed.

Other central banks will also be in focus Thursday for markets, with a wave of decisions spanning Asia and Europe. Among them, policymakers are seen keeping rates on hold in Philippines and Indonesia and raising them in Switzerland, Norway and the UK.

Traders are betting the Bank of England will have to accelerate the pace of interest-rate hikes after data Wednesday showed inflation remained at 8.7%, higher than expected for a fourth month. While the BOE is seen raising rates by 25 basis points to 4.75%, the risk of a larger half-point increase is growing. Traders also lifted expectations for the terminal rate to 6%, which would be the highest since the turn of the century. Two-year gilt yields rose to levels last seen in 2008.

Turkey’s decision holds a notable place on the calendar, with analysts unanimous the central bank will raise rates for the first time in more than two years after two former Wall Street bankers are now at the controls of the economy.

Elsewhere, crude fell slightly while remaining above $72 a barrel. Bitcoin held gains after jumping past $30,000 for the first time since April amid speculation over BlackRock Inc.’s surprising filing for a US spot Bitcoin exchange-traded fund.

Key events this week:

• Eurozone consumer confidence, Thursday
• Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
• US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
• Fed’s Powell delivers testimony before the Senate Banking Committee, Thursday
• Cleveland Fed’s Loretta Mester speaks Thursday
• Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
• Japan CPI, Friday
• US S&P Global Manufacturing PMI, Friday
• St. Louis Fed President James Bullard speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 1:20 p.m. Tokyo time. The S&P 500 fell 0.5%
• Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 1.4%
• Japan’s Topix rose 0.5%
• Australia’s S&P/ASX 200 fell 1.6%
• Euro Stoxx 50 futures fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0990
• The Japanese yen was little changed at 141.74 per dollar
• The offshore yuan was little changed at 7.1755 per dollar

Cryptocurrencies

• Bitcoin rose 0.9% to $30 248.63
• Ether rose 1.9% to $1,915.04

Bonds

• The yield on 10-year Treasuries was little changed at 3.72%
• Japan’s 10-year yield was unchanged at 0.370%
• Australia’s 10-year yield declined three basis points to 3.95%

Commodities

• West Texas Intermediate crude fell 0.3% to $72.31 a barrel
• Spot gold was little changed