Asia Stocks Rise on Fed Hike Pause, China Stimulus

HONG KONG, July 11 (Reuters) – Asian shares embraced gains while the safe-haven dollar took a slight dip on Tuesday, fueled by investor optimism surrounding the upcoming U.S. inflation data. The hope is that the data will provide further support for an imminent end to rate hikes. Additionally, investors cheered the prospect of China implementing economic stimulus measures to bolster its faltering growth.

Markets worldwide eagerly await the release of U.S. inflation data scheduled for Wednesday. This eagerly anticipated data will offer insights into the trajectory of interest rates.

In Europe, markets are poised for a positive opening, with pan-region Euro Stoxx 50 futures up 0.26%, German DAX futures rising 0.37%, and FTSE futures down 0.02%.

Across Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) experienced a robust increase of 1.6%. In the United States, stock futures, specifically the S&P 500 e-minis, saw a modest rise of 0.07%.

Investors are currently digesting the comments made by several Federal Reserve officials on Monday. While these officials highlighted the need for additional rate hikes to combat inflation, they also indicated that the end of the current monetary policy tightening cycle is on the horizon.

“U.S. CPI will be coming into focus, with the associated event risk potentially adding to the vibe,” stated ANZ analysts in a note.

Australian shares (.AXJO) saw a slight increase of 1.23%, while Japan’s Nikkei stock index (.N225) rose by 0.14%.

In afternoon trade, China’s blue-chip CSI300 index (.CSI300) demonstrated resilience, recording a gain of 0.63%. Hong Kong’s Hang Seng index (.HSI) surged ahead with a notable increase of 1.75%.

Monday’s data, which revealed a more significant-than-expected decline in Chinese producer prices, suggests that the country’s post-COVID rebound has lost momentum. This development has further fueled expectations that policymakers in China may need to implement additional measures to stimulate demand and reinforce economic stability, as noted by ANZ analysts.

To address the challenges faced by the embattled real estate sector, Chinese regulators extended some policies introduced in November to shore up liquidity.

However, analysts caution that while these measures may temporarily alleviate financial pressures faced by property developers and ensure timely project completions, they may not be sufficient to stimulate home purchases and rescue the overall property sector. Ting Lu, the chief China economist at Nomura, wrote, “Beijing may need to take more action to arrest the downward spiral.”

On Monday, U.S. stocks rebounded following last week’s losses, as comments from Fed officials reinforced the perception that the U.S. central bank might be nearing the end of its tightening cycle.

The Dow Jones Industrial Average (.DJI) rose by 0.62%, the S&P 500 (.SPX) gained 0.24%, and the Nasdaq Composite (.IXIC) added 0.18%.

This week, S&P 500 company earnings are set to kick off with reports from major U.S. banks. Analysts predict a year-on-year decline of 6.4% in second-quarter earnings, according to IBES data from Refinitiv.

In the realm of U.S. Treasuries, the yield on benchmark 10-year Treasury notes reached 3.9879% compared to Monday’s U.S. close of 4.006%. Meanwhile, the two-year yield, which tends to rise with traders’ expectations of higher Fed fund rates, touched 4.8515% compared to the U.S. close of 4.862%.

As a result of the Fed’s remarks, the greenback slipped to a two-month low of 101.75 against a basket of currencies during early Asia trade. This shift reflects investors’ tempered expectations of further U.S. interest rate hikes.

On Tuesday, the Japanese yen surged to a nearly one-month high of 141.15 per dollar and ultimately settled at 140.735 per dollar. The yen’s strength stems from the decline in U.S. Treasury yields.

U.S. crude experienced a modest increase of 0.66% to $73.47 a barrel, while Brent crude rose by 0.58% to $78.14 per barrel.

Gold remained relatively stable, with spot gold trading at $1929.59 per ounce.

In conclusion, Asian shares witnessed an upward trajectory as investors eagerly awaited the U.S. inflation data. Optimism regarding an imminent end to rate hikes and the potential for economic stimulus in China contributed to the positive market sentiment. Market participants are keen to gauge the state of price pressures, which will offer insights into the future of interest rates. The upcoming earnings reports from major U.S. banks will also be closely monitored, shaping market expectations for the second quarter. Overall, the financial landscape is poised for further developments as global economies navigate uncertainties and strive for stability.