Asian markets were on edge on Monday as investors awaited Beijing’s response to anticipated rate cuts, which have so far disappointed in terms of stimulus. It is expected that China will reduce lending benchmarks by 10 to 15 basis points, with analysts predicting a significant decrease in the mortgage reference rate to stimulate credit demand and support the struggling property sector. While the central bank has announced financial support for local government debt and encouraged commercial banks to lend more, investors prefer substantial fiscal spending rather than minor rate cuts, which have not yet materialized.
As a result, MSCI’s broadest index of Asia-Pacific shares outside Japan remained relatively flat, following a 3.9% decline last week. Japan’s Nikkei saw a slight increase of 0.2%, but also experienced a 3.2% drop last week. S&P 500 futures were up 0.1% and Nasdaq futures increased by 0.2%. The upcoming earnings report from AI-darling Nvidia will be a significant test of valuations, as analysts express concerns that the market, particularly in the tech sector, may be overextended and vulnerable to a deeper decline.
Bank of America’s latest survey of fund managers revealed that sentiment was the least bearish it has been since February 2022, with cash levels at a two-year low. Furthermore, 75% of those surveyed expect either a soft landing or no landing at all for the global economy. However, Goldman Sachs analysts argue that there is still potential for investors to increase their equity positions, noting that the reopening of the buy-back blackout window will boost demand for equities in the coming weeks.
The rise in bond yields has impacted stock valuations, with the US 10-year hitting 10-month highs last week at 4.328%. On Monday, yields were holding at 4.253%, and a break above 4.338% would reach levels not seen since 2007. Market participants anticipate that Federal Reserve Chair Jerome Powell will address this increase in yields and recent strong economic data at the Jackson Hole conference this week. The Atlanta Fed’s GDP Now tracker indicates a 5.8% growth rate for this quarter.
While the majority of polled analysts believe the Fed has completed its rate hikes, futures suggest a 31% chance of one more increase by December. The rise in yields has contributed to a five-week gain for the dollar and a nine-month high against the Japanese yen. The dollar was trading at 145.32 yen on Monday, with the market wary of the risk of Japanese intervention. The euro remained firm against the yen at 157.96 but faced pressure from the dollar at $1.0871 after a 0.7% loss last week. Gold prices have been affected by the ascent of the dollar and yields, trading at $1,888 per ounce after reaching a five-month low last week. Oil prices, on the other hand, experienced a seven-week winning streak before concerns about Chinese demand offset tight supplies. Brent crude decreased by 11 cents to $84.69 per barrel, while US crude fell by 1 cent to $81.25 per barrel. The risk of a strike at Australian offshore facilities, which could impact around 10% of global supply, supported prices for liquefied natural gas (LNG).
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