Stocks Rally and Bonds Stabilize as Fed Outlook Prevails over Moody’s Downgrade

Stocks in Asia surged on Monday as investors drew inspiration from Wall Street’s Friday rally, disregarding a Moody’s downgrade of the U.S. credit outlook. Tech stocks, which outshone other stocks in the U.S. last week, were particularly notable due to the calming of long-term Treasury yields at the start of the month, which improved the outlook for growth shares that rely on borrowing.

While U.S. 10-year Treasury yields stayed steady at about 4.646%, the U.S. dollar index remained just below its post-payrolls-report high of 106.01, having reached 105.80 on Friday. The Nikkei in Japan and Taiwan’s tech-heavy equity benchmark rose, while tech shares in Hong Kong’s Hang Seng outperformed. However, mainland Chinese blue chips were slightly lower, and Australia’s resource-heavy benchmark also slipped.

Nomura Securities strategist Naka Matsuzawa suggested that equities could be nearing a peak, expressing skepticism about the continuation of the stock market rally. Despite Moody’s announcement of lowering its outlook on the U.S. credit rating to “negative” from “stable” late on Friday, the market’s focus remained on upcoming economic data.

Crude oil prices declined due to concerns over demand outweighing supply concerns. Brent crude futures for January were down 35 cents, or 0.4%, at $81.08 a barrel, while the U.S. West Texas Intermediate (WTI) crude futures for December were at $76.82, down 35 cents, or 0.5%. Both benchmarks gained nearly 2% on Friday.

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