China is set to lead Asian stocks higher on optimism of more economic stimulus to come from Beijing, while Wall Street markets started the week with gains ahead of key central bank rate decisions.
Futures in Japan and Australia pointed to solid rises in early Tuesday trading. An index of US-listed Chinese shares on Monday had its biggest one-day gain in almost six months as the nation’s top leaders used a crucial Politburo meeting to flag more aid for the troubled real estate sector, alongside pledges to boost consumption and resolve local government debt.
While the Communist Party’s top decision-making body fell short of announcing large-scale stimulus, its vow to provide a boost to the slowing economy helped give bullish momentum for equity traders. The Dow Jones Industrial Average rose for an 11th straight day — its longest winning run since 2017. The S&P 500 traded near 4,550, while the Nasdaq 100 underperformed after a “special rebalance” that took effect Monday.
Among the corporate highlights, Tesla Inc. advanced after disclosing strong sales outside the US and China. Apple Inc. gained as Bloomberg News reported the company is keeping its iPhone shipments steady despite the 2023 turmoil.
Key Federal Reserve and European Central Bank’s gatherings this week will be closely watched for signs policymakers may be reaching the end of the cycle of aggressive policy tightening. There were fresh reminders about the negative recessionary affects of continuous rate hikes with disappointing data from both the US and euro-area. Aside from the economic picture, global companies with a combined $27 trillion in value were set to report results, including giants Microsoft Corp., LVMH and Samsung Electronics Co.
“The market is pretty well signaling another 25-basis point rate hike is on the cards,” said George Mateyo, chief investment officer at Key Private Bank. “People are probably looking past the announcement itself and then trying to glean some read in terms of what happens later this year.”
Meanwhile, two-year US bond rates climbed as an auction drew the highest yield since 2007. The dollar was little changed. Bitcoin briefly fell below $29,000. West Texas Intermediate crude topped $78 a barrel. Wheat and corn gained as Russia attacked one of Ukraine’s biggest Danube river ports.
AMC Entertainment Holdings Inc. climbed as a surprise court ruling Friday scuttled a stock conversion plan the cinema chain has now revised. Chevron Corp. rose on solid earnings.
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The delayed impact of aggressive interest-rate hikes by global central banks, dwindling consumer savings and a “deeply troubling” geopolitical backdrop are poised to spur fresh market declines and renewed volatility, according to JPMorgan Chase & Co. strategist Marko Kolanovic.
Kolanovic also noted that the stock-price reaction to earnings reports is expected to be muted as the market was strong coming into the second-quarter reporting season.
The outlook for the world’s largest economy will likely hinge on the Fed’s willingness to tolerate inflation markedly higher than it would prefer. After taking a break from tightening last month, Chair Jerome Powell and his colleagues look locked in to raising interest rates by a quarter percentage point on Wednesday.
The big question facing policymakers and financial markets at this stage is what comes next.
Whether the Fed gives investors a reason to sell or there’s a big earnings disappointment this week, the market is ripe for a decline into the fall, according to Paul Nolte at Murphy & Sylvest Wealth Management.
“For now, that decline is not something to upset the longer-term trajectory of the market,” he noted.
Investors have mostly shrugged off positive earnings surprises from companies that reported results so far, according to strategists at Bank of America Corp. Moves were on average 1.3 percentage points larger than implied by the options market, but the direction was skewed to the downside.
“This suggests increased positioning risk and good news having been priced in,” BofA strategists led by Savita Subramanian added.
Key events this week:
- US Conf. Board consumer confidence, Tuesday
- US new home sales, Wednesday
- FOMC rate decision, Fed Chair Powell news conference, Wednesday
- China industrial profits, Thursday
- ECB rate decision, Thursday
- US GDP, durable goods orders, initial jobless claims, wholesale inventories, Thursday
- Japan Tokyo CPI, Friday
- BOJ rate decision, Friday
- Eurozone economic confidence, consumer confidence, Friday
- US consumer income, employment cost index, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- Hang Seng futures rose 2.7% as of 7:14 a.m. Tokyo time
- S&P/ASX 200 futures rose 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1066
- The Japanese yen was little changed at 141.44 per dollar
- The offshore yuan was little changed at 7.1870 per dollar
- The Australian dollar was little changed at $0.6738
Cryptocurrencies
- Bitcoin rose 0.2% to $29,189.7
- Ether was little changed at $1,850.68
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.87%
Commodities
- West Texas Intermediate crude rose 0.2% to $78.86 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.