Asian Stock Markets Rise as Treasury Yields Drop: Fed's Rate Optimism Boosts Confidence

In a notable turn of events, Asian stocks surged while Treasuries experienced a significant jump in response to dovish comments on rates from Federal Reserve officials. Notably, stocks in Australia, Japan, and South Korea all witnessed gains exceeding 1%, signaling renewed investor confidence in the region. Even futures in Hong Kong pointed towards positive trajectories.

Source: https://www.thehindubusinessline.com/   

In a notable turn of events, Asian stocks surged while Treasuries experienced a significant jump in response to dovish comments on rates from Federal Reserve officials. Notably, stocks in Australia, Japan, and South Korea all witnessed gains exceeding 1%, signaling renewed investor confidence in the region. Even futures in Hong Kong pointed towards positive trajectories.

Simultaneously, contracts of US stocks displayed minimal changes during the early hours in Asia, following a 0.6% advancement in the S&P 500 on Monday. The Treasuries market saw a sharp rise as trading resumed after a holiday, causing yields on the benchmark 10-year to plummet by 15 basis points to 4.65% on Tuesday. This trend was mirrored in Australian and New Zealand bonds, which also experienced declining yields.

Federal Reserve Vice Chair Philip Jefferson emphasized a cautious approach in light of the recent surge in Treasury yields. Moreover, Lorie Logan, President of the Fed Bank of Dallas, suggested that the spike in long-term rates might reduce the necessity for further tightening.

Contrary to earlier predictions of another Fed hike in the year, central bank officials have tempered speculation of a 2023 rate increase, altering the narrative. Andrew Brenner at NatAlliance Securities aptly summarized this shift, stating, “The odds for another tightening have dropped dramatically since Friday.”

Meanwhile, West Texas Intermediate saw a minor retreat after previous gains, sparked by concerns of an escalated conflict following Hamas’ attack on Israel, which could potentially impact energy supplies. Gold maintained its upward trajectory for a third consecutive day, following its most substantial one-day surge since May, driven by safe-haven buying in the wake of the conflict. The dollar experienced a slight dip.

In Asia, recent data unveiled a 17% decline in China’s daily new-home sales during the Golden Week holiday compared to the previous year. This underscores the prolonged nature of the housing market slump, a significant obstacle to economic growth, and a contributor to the developer debt crisis.

Energy companies led Monday's gains in the S&P 500, as US crude futures briefly exceeded $87 a barrel. Notably, Exxon Mobil Corp. and Chevron Corp. saw an increase of over 2.7%. In contrast, defense companies witnessed a rally, with Northrop Grumman Corp. experiencing its most substantial surge since March 2020, while Lockheed Martin Corp. gained 8.9%. Conversely, American Airlines Group Inc. and Delta Air Lines Inc. experienced over 4% declines.

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The shekel in Israel faced depreciation, even after the central bank introduced a $45 billion support program. Meanwhile, gas prices in Europe witnessed a surge, adding to the broader economic concerns. Solita Marcelli, Chief Investment Officer Americas at UBS Global Wealth Management, highlighted the concurrent challenges of geopolitical tensions and moderating global economic growth.

She noted, “Against this backdrop, we continue to prefer fixed income to equities,” emphasizing the better risk-reward profile for fixed-income investments. Furthermore, Marcelli recommended considering high-quality bonds within the 5-10-year maturity range, anticipating a further cooling in inflation and slower global growth.

Morgan Stanley’s Michael Wilson underscored the potential risk to US stocks stemming from fiscal policy constraints, particularly as the Fed continues to combat high inflation. Despite narrowly avoiding a government shutdown, the absence of a resilient long-term fiscal structure could have repercussions on financial markets, cautioned Wilson, a prominent bearish voice on Wall Street.