Stocks rise with Fed-pause bets, PBOC in spotlight: Markets wrap

Asian equities rose along with US and European futures amid optimism that the Federal Reserve will pause its tightening campaign and as the People’s Bank of China cut a short-term policy interest rate.

Chinese shares reversed initial losses as investors weighed the significance of the PBOC lowering the seven-day reverse repurchase rate. While this may not have a big impact in itself, the move adds to speculation that the central bank could reduce the medium-term lending facility rate on Thursday, which would do more to aid the economy.

Chinese technology stocks in Hong Kong were the biggest gainers. Property shares also rallied following the move but pared most of their gains.

Japanese equities also showed strong gains, with the Topix rallying more than 1% in a third day of gains that have taken the index to the highest level since 1990. The Nikkei 225 advanced about 2%.

The shift from the PBOC also rippled through rates and currency markets, with Chinese bond yields sliding and the yuan weakening about 0.2% versus the dollar.

“It is to ease the current strains seen in the weakening domestic demand,” said Kelvin Wong, senior market analyst at Oanda Asia Pacific. “The odds are now high for a cut on this Thursday to the 1-year MLF rate.”

Contracts for US benchmarks rose in Asia after the Nasdaq 100 and the S&P 500 closed at the highest levels since April 2022. Futures for Euro Stoxx 50 rallied 0.7%.

The two-year US Treasury yield, which is sensitive to imminent central bank moves, edged lower for a second day. The Bloomberg Dollar Spot Index was slightly lower as major currencies traded within ranges of about 0.3% against the greenback.

Beyond the immediate action of the Asia session, all eyes remain on the Federal Open Market Committee, which is expected to keep interest rates in the 5%-5.25% range on Wednesday, assuming that consumer price index data later Tuesday shows subdued inflationary pressure. The likelihood of a hike is higher in July, with swaps showing an almost quarter-point of additional tightening priced in by next month’s meeting.

“The Fed usually doesn’t like to surprise the market,” Alvin T. Tan, head of emerging-market currency strategy at RBC Capital Markets in Singapore, wrote in a note. “But a CPI beat/miss could certainly prompt a market repricing.”

Oil was fractionally higher after a heavy drop Monday that came as Goldman Sachs Group Inc. analysts cut their crude forecast for the third time in six months. Even with Saudi Arabia’s decision less than two weeks ago to cut 1 million barrels a day of production, the bank sees crude supplies swelling, and trimmed its year-end price estimate to $86.

Key events this week:

• US CPI, Tuesday.
• Eurozone industrial production, Wednesday.
• US PPI, Wednesday.
• Federal Reserve rate decision, updated economic forecasts, Jerome Powell’s press conference, Wednesday.
• IEA oil market report, Wednesday.
• China property prices, retail sales, industrial production, Thursday.
• China central bank meeting to decide on one-year policy loan rate, Thursday.
• European Central Bank President Christine Lagarde holds press conference following the rate decision, Thursday.
• US initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, Thursday.
• Bank of Japan rate decision, Friday.
• US University of Michigan consumer sentiment, Friday.

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 1:39 p.m. Tokyo time. The S&P 500 rose 0.9%
• Nasdaq 100 futures rose 0.4%. The Nasdaq 100 rose 1.8%
• Japan’s Topix rose 1.2%
• Australia’s S&P/ASX 200 rose 0.2%
• Hong Kong’s Hang Seng rose 0.4%
• The Shanghai Composite was little changed
• Euro Stoxx 50 futures rose 0.7%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.2% to $1.0782
• The Japanese yen was little changed at 139.49 per dollar
• The offshore yuan fell 0.2% to 7.1686 per dollar
• The Australian dollar rose 0.2% to $0.6762

Cryptocurrencies

• Bitcoin rose 0.5% to $26,036.42
• Ether rose 0.3% to $1,744.95

Bonds

• The yield on 10-year Treasuries declined one basis point to 3.72%
• Japan’s 10-year yield declined one basis point to 0.415%
• Australia’s 10-year yield declined four basis points to 3.90%

Commodities

• West Texas Intermediate crude rose 0.5% to $67.47 a barrel
• Spot gold rose 0.2% to $1 961.01 an ounce