Stocks rally amid optimism over inflation, China: markets wrap

Equities climbed in Asia on Wednesday amid upbeat sentiment over China’s economic reopening and as traders bet that the US consumer price index will show further softening.

Shares advanced about 1% in Hong Kong, Japan and Australia after the S&P 500 moved back above its key 3,900 mark. US futures fluctuated and contracts for European shares rose.

South Korea’s Kospi trimmed an earlier gain as semiconductor makers narrowed an advance and financials widened losses. Plans by Apple Inc. to start using its own custom displays in mobile devices also damped sentiment.

Treasury yields trimmed the advance they made on Tuesday, with the rate on 10-year debt slipping to just below 3.6% as investors remained focused on the price outlook for the US.

Federal Reserve Chair Jerome Powell earlier refrained from commenting on the outlook for monetary policy as traders looked to Thursday’s inflation data for any signs of cooling. Such a scenario could help build the case to slow the pace of rate hikes, even as some officials say it’s too early to declare victory over inflation.

Australian government bond yield gave up gains made in the wake of data showing inflation accelerated in November. The Australian dollar led gains among Group-of-10 currencies versus the greenback.

A gauge of dollar strength inched lower lower and was within sight of a seven-month low. The yen traded in the middle of its range since late December. The offshore yuan was near the strongest level versus the greenback since August.

While Powell didn’t directly comment on the Fed’s next steps at a forum in Stockholm on Tuesday, he did say that “restoring price stability when inflation is high can require measures that are not popular in the short term as we raise rates to slow the economy.”

Fed Governor Michelle Bowman said the central bank has more work to do to curb inflation, noting that further tightening is needed.

Meanwhile in Asian markets, much focus is on China and its reopening from Covid curbs. The MSCI Asia Pacific Index rose, adding to Monday’s move, when it entered a bull market amid hopes for economic growth and weakness in the dollar.

“The Chinese reopening today makes China kind of a unique situation in the sense that we had two years of subdued growth due to Covid and now everything is reopening very fast,” said Hugues Rialan, Asia chief investment officer at Pictet Wealth Management. Chinese equities are “fairly cheap” and should benefit from a rebound and repricing this year, according to Rialan.

Optimism over demand from China was also evident in the iron ore market, with the steel-making ingredient rallying above $120 a ton in Singapore.

Yet China’s reopening has also triggered a surge of infections and tighter requirements for its citizens to enter many countries. Beijing has begun to hit back against this, suspending some visas for South Korea and Japan.

Elsewhere in markets, oil fell after an industry report showed a large build in US crude stockpiles amid a downbeat outlook for monetary policy.

Key events this week:

• ECB Governing Council members speak at Euromoney conference in Vienna, Wednesday
• US CPI, initial jobless claims, Thursday
• St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday
• Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday
• China trade, Friday
• US University of Michigan consumer sentiment, Friday
• Citigroup, JPMorgan, Wells Fargo report earnings, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 2:30 p.m. Tokyo time. The S&P 500 rose 0.7%
• Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.9%
• Japan’s Topix rose 1%
• South Korea’s Kospi rose 0.6%
• Australia’s S&P/ASX 200 Index rose 0.9%
• Hong Kong’s Hang Seng Index rose 1.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.1% to $1.0747
• The Japanese yen was little changed at 132.30 per dollar
• The offshore yuan rose 0.1% to 6.7770 per dollar
• The Australian dollar rose 0.5% to $0.6922

Cryptocurrencies

• Bitcoin fell 0.3% to $17,420.45
• Ether fell 0.5% to $1,332.94

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.59%
• Japan’s 10-year yield was little changed at 0.50%
• Australia’s 10-year yield was little changed at 3.72%

Commodities

• West Texas Intermediate crude fell 1.1% to $74.31 a barrel
• Spot gold rose 0.2% to $1 880.98 an ounce