Asia stocks went up because of bets on the Fed rate, and the yuan went up because China reopened.
Asian stocks went up on Monday because investors thought that the U.S. would raise interest rates less quickly and China would open its borders, both of which were good for the global economy.
MSCI’s broadest index of Asia-Pacific shares outside of Japan went up by 2.0% to a five-month high, with South Korean shares going up by 2.2%.
Blue chips in China went up by 0.7%, while shares in Hong Kong went up by 1.4%. China’s currency, the yuan, went up to its highest level since mid-August, just under 6.8000.
The Nikkei was closed for a holiday in Japan, but futures were trading at 26,215, which was higher than Friday’s cash close of 25,973.
Both the S&P 500 futures and the Nasdaq futures went up by 0.2%. Futures for the EUROSTOXX 50 went up by 0.6%, and futures for the FTSE went up by 0.3%.
This week, the big U.S. banks start reporting their earnings, and Wall Street is worried that there won’t be any growth from last year to this year.
Analysts at Goldman Sachs wrote, “Excluding energy, S&P 500 EPS is expected to fall 5%, driven by 134 basis points of margin compression” (NYSE:GS). ” As earnings season starts, the outlook on earnings revisions is negative compared to the past.
“We expect more cuts to the consensus EPS forecasts for 2023,” they said. “China’s reopening is one risk that could make earnings per share go up in 2023, but margin pressures, taxes, and a recession are bigger risks that could make earnings per share go down.”
Reports that Goldman would start cutting thousands of jobs across the company on Wednesday to get ready for a tough economy were a sign of the stress.
In Asia, Beijing has now opened borders that had been almost completely closed since the COVID-19 pandemic began. This will allow more people to move around the country.
Winnie Wu, a Bank of America (NYSE:BAC) analyst, thinks that China’s economy, which is the second largest in the world, will get a boost from a cyclical upturn in 2023. She also thinks that the market will go up due to both a multiple expansion and a 10% increase in earnings per share.
Fading the Fed
Last week, the mood on Wall Street was helped by a good mix of strong U.S. payroll gains, slower wage growth, and a sharp drop in service-sector activity. Market bets on the Federal Reserve raising interest rates were reduced.
Futures on Fed funds show that there is about a 25% chance of a half-point hike in February, which is down from about 50% a month ago.
Because of this, investors will be very interested in what Fed Chair Jerome Powell says on Tuesday at a meeting of central bankers in Stockholm.
It also makes Thursday’s U.S. consumer price index (CPI) data even more important. The annual rate of inflation is expected to slow to a 15-month low of 6.5%, and the core rate is expected to drop to 5.7%.
John Briggs, an analyst at NatWest Markets, said, “Our CPI forecasts are lower than the consensus, and if we’re right, that will probably keep the market pricing at 25 basis points instead of 50 basis points.”
“In the big picture, it’s still likely that the Fed will raise rates a few more times and then keep them high until it’s certain that inflation will go down.” For us, that means a 5-5.25% fund rate.
Even before Friday’s mixed data, U.S. 10-year yields had already dropped sharply by 15 basis points to 3.57%, which pulled the U.S. dollar down everywhere.
On Monday morning, the euro was still worth $1.0673. On Friday, it had dropped to a low of $1.0482. The dollar fell to 131.48 yen from a high of 134.78 yen last week, and its index stayed the same at 103.600.
After hundreds of supporters of former far-right President Jair Bolsonaro were arrested for breaking into the country’s Congress, presidential palace, and Supreme Court, the Brazilian real had not yet been traded.
The fall of the dollar and yields helped gold, sending it to a high point around $1,877 an ounce not seen in eight months. [GOL/]
After falling by about 8% last week because of worries about demand, oil prices were more stable this week. [O/R]
Brent went up 80 cents to $79.37 per barrel, while U.S. crude went up 78 cents to $74.55 per barrel.
