- Nikkei at three-month high, S&P 500 futures company
- Chinese stocks fall after Beijing sets 5% growth target
- The markets are preparing for the Powell meetings, and the meetings of the Bank of Japan, the Bank of Canada and the Reserve Bank of Australia
- The February payrolls are a major test of the US interest rate outlook
SYDNEY (Reuters) – Asian stocks rose on Monday as bond markets held their breath ahead of an update on U.S. interest rate expectations from the world’s most powerful central bank and a jobs report that could decide whether the next hike needs to be super-sized.
There was some disappointment that Beijing chose to lower its growth forecast with a target of 5%, rather than the 5.5% surplus the market favors, but the recent influx of actual data has been strong enough to keep investors optimistic.
China blue chips (.CSI300) fell 0.5% after gaining 1.7% last week. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) is still up 0.7%.
Japan’s Nikkei (.N225) rose 1.2% to a three-month high, while South Korean stocks (.KS11) rose 1.0% supported by a weak inflation reading.
Futures on the EUROSTOXX 50 rose 0.5%, while FTSE futures were flat. S&P 500 futures rose 0.2% and Nasdaq futures rose 0.4%, after rallying on Friday as bond yields eased slightly.
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Yields on the 10-year Treasury came in at 3.94%, after last week’s rise to 4.09% proved enticing enough to attract buyers.
Markets are becoming resigned to further rate hikes by the Fed, but are hoping to hold on to quarter-point moves rather than revert back to half-point increases.
San Francisco Fed President Mary Daly reiterated on Saturday that interest rates should rise but set a higher limit for moving to half-point increases.
Futures indicate a 72% chance that the Fed will go 25 basis points at its meeting on March 22nd.
It all sets the scene for Federal Reserve Chairman Jerome Powell’s congressional testimony on Tuesday and Wednesday, where he will no doubt be questioned on whether larger hikes are needed.
However, a lot may depend on what the February jobs report reveals on Friday. Forecasts center on a modest increase of 200,000 after the January jump of 517,000, but the risks are to the upside.
This will be followed by the CPI report for February on March 14th.
“Powell’s testimony comes before salary numbers and inflation, so he’s likely to avoid sticking to the policy path,” said Jan Nefrozi, an analyst with NatWest Markets.
“Payroll is due on the last day when Fed officials can discuss monetary policy publicly, but the CPI will be released during the blackout,” he added. “If we end up in a situation where the jobs numbers and inflation present a conflicting view, it can become difficult to predict the outcome of the Fed meeting.”
The Fed is not alone in warning of further tightening.
In an interview published over the weekend, European Central Bank President Christine Lagarde said it was “highly likely” that they would raise interest rates by 50 basis points this month and that the bank had more to do on inflation.
Australia’s central bank is expected to raise interest rates by 25 basis points on Tuesday, while the Bank of Canada is expected to pause after it raised rates at a record pace of 425 basis points in 10 months.
Friday marks BoJ Governor Haruhiko Kuroda’s final policy meeting before Kazuo Ueda takes over in April, and all eyes are on the fate of the Yield Curve Control (YCC) position.
Analysts at NAB noted in a note that “no change is expected but we should not completely rule out the chance of Kuroda coming out with a big hit via the Bank of Japan’s announcement of yet another adjustment to the YCC’s 0% tolerance range.”
The Bank of Japan shook the markets in December when it unexpectedly widened the allowable trading range for 10-year bond yields to between -50 and +50 basis points.
So far, Ueda has sounded pessimistic about the policy outlook that has kept the yen in a softer direction. The dollar recorded its latest trading at 135.61 yen, after touching a three-month peak of 137.10 yen last week.
The euro settled at $1.0643, off a seven-week low of $1.0533, while the dollar index fell slightly at 104.430.
The decline in bond yields on Friday helped gold regain some of its gains and it traded at $1,855 an ounce.
Oil prices fell, as investors may have been disappointed that China did not set itself more ambitious growth targets.
Brent crude fell 62 cents to $85.21 a barrel, while US crude fell 59 cents to $79.09 a barrel.
Reporting from Wayne Cole. Edited by Shri Navaratnam
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