Stocks rally, treasuries hold gains on Fed bets: Markets wrap

Stocks in Asia rallied after an unexpected slowdown in US inflation bolstered bets that the Federal Reserve’s aggressive hiking cycle is over. Treasuries steadied following a surge in the previous session.

MSCI Inc.’s Asia Pacific Index jumped over 2%, with all markets in the green. Futures for European and US stocks pointed to further gains after the S&P 500 ended Tuesday with its biggest advance since April.

Traders are now gearing up for what may be a fundamental shift in the investment landscape. Fed swaps indicate the odds of another hike have fallen to almost zero — with the market pricing in a 50 basis-point rate cut by July. Fed officials welcomed the latest data showing receding inflation, while adding that there’s still a ways to go before it reaches the central bank’s 2% target.

“With inflation starting to stabilize, the Fed could actually think about pausing in the December meeting,” said James Cheo, Chief Investment Officer, Southeast Asia at HSBC Global Private Banking and Wealth. “The setup for markets should be fairly conducive from now perhaps until December, but we are not out of the woods yet because core inflation is still going to be quite sticky.”

The 10-year Treasury yield fell 1 basis point after tumbling 19 basis points in the previous session. The dollar steadied after declining 1.2%, its biggest drop in a year.

Investors focus is now turning to UK inflation data due soon. Consensus forecast is for headline inflation to ease to 4.7% in October from 6.7% in the previous month. A slowdown will give traders more confidence that global inflationary pressure is weakening.

Sentiment in Asia was further supported by the Chinese central bank’s decision to inject the largest amount of cash since 2016 into the banking system as it sought to boost growth. The latest economic report pointed to a mixed recovery in China, with retail sales beating estimates but the contraction in property investment deepening.

The meeting between Chinese President Xi Jinping and his US counterpart Joe Biden is also closely watched for potential thawing of tensions. Tencent Holdings reports earnings later in the day.

“The level of liquidity injection went beyond market expectation but is in line with our expectation,” said Becky Liu, head of China macro strategy at Standard Chartered. Still, “more supports are needed given renewed downwards pressure indicated in October data — so we still see RRR cut before year-end,” she added, referring to the reserve requirement ratio.

South Korea’s won led gains among Asian currencies. The yen fell, partly unwinding its strong rally seen in the previous day, while Japan’s 10-year yield slipped to the lowest level in about a month. The Japanese currency remained on the back foot after the nation’s third-quarter economic growth shrank.

Bullish on bonds

Equities have rallied in November on bets the Fed is done with rate hikes, with the S&P 500 up more than 7% in the span — and heading toward its best month since October 2022. Tesla Inc. led gains in megacaps on Tuesday and Nvidia Corp. rallied for a 10th straight session.

Investors also turned the most bullish on bonds since the global financial crisis amid “big conviction” that rates will move lower in 2024, according to the latest Bank of America Corp. fund manager survey.

Elsewhere, oil steadied after a short-lived relief rally as the market digested differing views on the supply and demand outlooks. Gold edged higher.

Key events this week:

• Tencent Holdings Ltd earnings, Wednesday
• UK CPI, Wednesday
• US retail sales, business inventories, PPI, Empire manufacturing, Wednesday
• Target earnings, Wednesday
• China new home prices, Thursday
• US initial jobless claims, industrial production, Thursday
• Walmart earnings, Thursday
• US President Joe Biden and Chinese President Xi Jinping expected to speak at APEC leaders summit, Thursday
• Cleveland Fed President Loretta Mester, New York Fed President John Williams and Fed vice chair for supervision Michael Barr speak, Thursday
• Bank of England deputy governor Dave Ramsden and ECB President Christine Lagarde speak at event, Thursday
• US housing starts, Friday
• US Congress faces a midnight deadline to pass a federal spending measure, Friday
• ECB President Christine Lagarde speaks, Friday
• Chicago Fed President Austan Goolsbee, Boston Fed President Susan Collins and San Francisco Fed President Mary Daly speak, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 6:24 a.m. London time. The S&P 500 rose 1.9%
• Nasdaq 100 futures rose 0.3%. The Nasdaq 100 rose 2.1%
• Japan’s Topix rose 1.2%
• Australia’s S&P/ASX 200 rose 1.4%
• Hong Kong’s Hang Seng rose 3.2%
• The Shanghai Composite rose 0.4%
• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0875
• The Japanese yen fell 0.2% to 150.65 per dollar
• The offshore yuan was little changed at 7.2476 per dollar
• The Australian dollar was little changed at $0.6505
• The British pound was little changed at $1.2490

Cryptocurrencies

• Bitcoin was little changed at $35,569.4
• Ether was little changed at $1,980.84

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.44%
• Japan’s 10-year yield declined 5.5 basis points to 0.795%
• Australia’s 10-year yield declined 13 basis points to 4.53%

Commodities

• West Texas Intermediate crude rose 0.5% to $78.66 a barrel
• Spot gold rose 0.2% to $1 968.45 an ounce