Asian Stock Markets Rise as Treasury Yields Drop: Fed's Rate Optimism Boosts Confidence
- Posted on October 10, 2023
- Business
- By Arijit Dutta
- 339 Views
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.