Stocks advance, dollar weakens ahead of Powell: markets wrap

Stocks in Asia advanced along with US and European equity futures and the dollar slid ahead of commentary from Federal Reserve Chair Jerome Powell later Tuesday that may shape views on the central bank’s rate path.

A gauge of Asian shares rose as much as 0.8%, trimming losses from the biggest two-day drop in four months. S&P 500 and Nasdaq 100 contracts were in the green, while Euro Stoxx 50 futures made small gains.

Some of the strongest gains Tuesday were in tech stocks listed in Hong Kong — providing a sharp contrast to the decline in US equities Monday. Baidu Inc. surged as much as 18% after affirming it will launch a ChatGPT-like bot in March.

The dollar weakened against all members of the Group of 10, while Treasuries clawed back some of the two-day rout that was sparked by traders ramping up bets on future Fed tightening. The recent moves have taken the shine off the best start to a year for cross-asset returns since 1987.

Investors are weighing whether Powell may emphasize that optimism for rate cuts later in 2023 is probably misplaced. Atlanta Fed President Raphael Bostic said Monday the strong jobs data on Friday raises the possibility that the central bank will need to increase interest rates to a higher peak than policy makers had previously expected.

Powell may reiterate some of the points he made even before the latest jobs report, which justified the Fed’s rate hikes last year, according to Jack McIntyre, a portfolio manager at Brandywine Global Investment Management LLC. “I expect that Powell will drive home that point that they’ve done a lot and there’ll be a tightening that is going to impact the economy later on this year,” he said on Bloomberg Television.

The Australian dollar extended its gain and bonds fell after the Reserve Bank of Australia raised its key rate to the highest in 10 years and said further hikes will be needed in the coming months to combat inflation. Australia’s benchmark stock index reversed course and fell 0.5%.

Australia’s yield curve may flatten as markets are “liable to overcompensate on tightening now” after underestimating the central bank’s willingness to stick to its inflation-targeting regime, according to Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore. “The market seemed to disavow RBA credibility as soon as it mentioned some concern over global growth weakness last year,” he said.

The yen gained after Japan unexpectedly reported nominal wages jumped in December by the biggest margin in almost 26 years, stoking market bets that the central bank will adjust or back away from its stimulus program under a new governor.

Citigroup sees dollar strength as a key risk to the stock markets. “The view is very much that it’s going to be a difficult six to eight months for equity markets globally, not just in Asia,” Mohammed Apabhai, head of Asia-Pacific trading strategies at Citigroup, said on Bloomberg Television. “But if the dollar rallies back to anything more than what we are projecting, emerging market will get punished.”

In India, Adani Group’s stocks climbed, pausing a rout that began when US short-seller Hindenburg Research made fraud allegations against the conglomerate. The Group’s flagship Adani Enterprises Ltd. extended gains to 20% in Tuesday trading, as the Adani family’s move to prepay $1.11 billion of borrowings allays some investor fears.

The air of caution in global markets is also being reinforced by geopolitical concerns. The US is preparing to impose a 200% tariff on Russian-made aluminum, while the US started to recover some parts from the Chinese balloon that a fighter jet shot down off the coast of South Carolina. Biden administration officials said the US was still trying to figure out how much senior leaders in Beijing knew about the alleged spy mission.

Elsewhere, oil rose for a second session after Saudi Arabia unexpectedly raised its crude prices to Asia, signaling confidence in the demand outlook. Gold edged higher.

Key events:

• US trade, Tuesday
• Fed Chair Jerome Powell interviewed by David Rubinstein at the Economic Club of Washington, Tuesday
• President Joe Biden delivers the State of the Union address before Congress, Tuesday
• US wholesale inventories, Wednesday
• New York Fed President John Williams is interviewed at Wall Street Journal live event, Wednesday
• US initial jobless claims, Thursday
• ECB President Christine Lagarde participates in EU leaders summit, Thursday
• Bank of England Governor Andrew Bailey appears before Treasury Committee, Thursday
• US University of Michigan consumer sentiment, Friday
• Fed’s Christopher Waller and Patrick Harker speak, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 6:27 a.m. London time. The S&P 500 fell 0.6%
• Nasdaq 100 futures rose 0.2%. The Nasdaq 100 fell 0.9%
• Euro Stoxx 50 futures rose 0.1%
• Japan’s Topix rose 0.2%
• Australia’s S&P/ASX 200 fell 0.5%
• Hong Kong’s Hang Seng rose 0.5%
• China’s Shanghai Composite rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.2% to $1.0743
• The Japanese yen rose 0.4% to 132.14 per dollar
• The offshore yuan rose 0.2% to 6.7898 per dollar
• The Australian dollar rose 0.9% to $0.6943
• The British pound rose 0.3% to $1.2056

Cryptocurrencies

• Bitcoin rose 0.3% to $22,976.17
• Ether fell 0.1% to $1,636.55

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.62%
• Japan’s 10-year yield was unchanged at 0.49%
• Australia’s 10-year yield advanced 13 basis points to 3.60%

Commodities

• West Texas Intermediate crude rose 1.5% to $75.22 a barrel
• Spot gold rose 0.4% to $1 875.02 an ounce