An Asian stock gauge rebounded Thursday from the lowest level since 2020, while bonds climbed after Australia’s central bank chief signaled a potential end to jumbo interest-rate hikes.
The regional index rose about 1%, paced by Japanese and Australian shares. US and European equity futures also made gains after a near-2% advance in the S&P 500 and Nasdaq 100 on Wednesday.
Australia’s bourse was lifted by Reserve Bank Governor Philip Lowe’s comment that the case for slower monetary tightening gets stronger as borrowing costs climb. Australia’s bond yields and currency sank.
Treasuries pushed higher, lowering the US 10-year yield to 3.22%, as Lowe’s comment spotlighted the potential for an eventual pivot toward a less aggressive global wave of monetary tightening.
In the meantime, investors face the harsh reality of sharp rate rises. The European Central Bank takes center stage later Thursday, with Bloomberg Economics predicting a 75 basis points increase to front-load tightening even as the region grapples with an energy crisis.
The dollar was firm, while the yen erased losses after Japanese officials arranged a meeting to discuss international financial markets. Greenback strength is pressuring some Asian policy makers to step up efforts to curtail currency weakness.
Central banks are walking a tightrope, raising interest rates sharply to tackle inflation while remaining leery of sparking a damaging economic contraction in the process. The uncertainty is whipsawing markets and has saddled equities and bonds with steep losses this year.
Federal Reserve officials reiterated their determination to get inflation under control. Vice Chair Lael Brainard said interest rates will need to rise to restrictive levels, while cautioning risks would become more two-sided in the future. Chair Jerome Powell is due to speak on Thursday.
“What’s clear to us is the Fed continues to emphasize they are not done until they see inflation coming back toward that 2% target,” Nadia Lovell, UBS Global Wealth Management’s senior US equity strategist, said on Bloomberg Radio.
The Fed’s Beige Book report said US economic expansion prospects were weak, while adding that price growth showed signs of decelerating.
Elsewhere, oil pared a sharp slide this week sparked by demand risks from monetary tightening and China’s Covid travails — the megacity of Chengdu extended a weeklong lockdown in most downtown areas.
Gold wavered, while Bitcoin held above the $19,000 level.
What to watch this week:
- European Central Bank rate decision, Thursday
- Fed Chair Jerome Powell due to speak, Thursday
- Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Thursday
- EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday
Some of the main moves in markets:
- S&P 500 futures rose 0.2% as of 7:07 a.m. in London. The S&P 500 rose 1.8%
- Nasdaq 100 futures increased 0.3%. The Nasdaq 100 rose 2.1%
- Japan’s Topix index rose 2.2%
- Australia’s S&P/ASX 200 index added 1.6%
- South Korea’s Kospi index advanced 0.3%
- Hong Kong’s Hang Seng Index shed 0.8%
- China’s Shanghai Composite Index lost 0.2%
- Euro Stoxx 50 futures rose 0.6%
- The Bloomberg Dollar Spot Index was steady
- The euro was at $1.0005
- The Japanese yen was at 143.71 per dollar
- The offshore yuan was at 6.9678 per dollar, down 0.1%
- The yield on 10-year Treasuries fell four basis points to 3.22%
- Australia’s 10-year bond yield fell 14 basis points to 3.56%
- West Texas Intermediate crude added 0.8% to $82.61 a barrel
- Gold was at $1 716.75 an ounce, down 0.1%.