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Asian Stocks Eye Early Gains Into Fed Meeting Week: Markets Wrap

(Bloomberg) — Asian stocks are set for an early rise as investors ready for a week that includes key US inflation data and the Federal Reserve’s final rate decision of the year among multiple central bank meetings.

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Australian shares climbed in early trading, while equity futures in Japan pointed to gains and contracts in Hong Kong were down. US shares rose Friday to notch a sixth straight weekly gain, while bond yields surged after hotter than expected US jobs data.

Traders were forced to trim their bets on rate cuts in 2024 after nonfarm payrolls increased 199,000 last month, the unemployment rate fell to 3.7% and monthly wage growth topped estimates. Consumer sentiment also rebounded.

US inflation data on Tuesday ahead of the Federal Reserve’s policy meeting Wednesday are now critical to solidify bets the central bank will aggressively cut rates next year and set the tone for markets into 2024.

“The run of data that preceded Friday’s non-farm payrolls data has mostly been softer, and equity markets appeared willing to overlook NFP as an outlier,” Tony Sycamore, an analyst at IG Australia in Sydney wrote in a note. “However, the equity market is unlikely to be so forgiving if it gets another fright this week from either CPI, the FOMC meeting, or retail sales.”

Softening inflation and employment data in the past month have convinced investors that the Fed is done raising interest rates and ignited bets that cuts of at least 125 basis points were in store over the next 12 months. Traders scaled back those wagers to about 110 basis points of easing after the data.

“People saying recession need to have their heads examined,” Neil Dutta at Renaissance Macro Research said on Friday.

The S&P 500 closed the week with its longest winning run since November 2019, while Wall Street’s “fear gauge” — the VIX — came back to pre-pandemic levels. US two-year yields jumped 13 basis points to 4.72%. Swap contracts now show a 40% probability of a March rate cut — from over 50% prior to the economic data.

Read More: Decisive Moment Arrives With $4 Trillion Stocks Rally at Stake

In Asia, Chinese stocks and the yuan will be front of mind early Monday after China’s consumer prices fell 0.5% last month from a year earlier, the steepest pace in three years. At the same time, producer costs dropped even further into negative territory, underscoring the challenges facing the economic recovery. The Australian and New Zealand dollars – two proxies to gauge the health of the Chinese economy – edged lower in early trading.

Elsewhere, oil bounced back Friday on the US jobs report and plans to refill the Strategic Petroleum Reserve, but still closed out the longest weekly losing streak since late 2018 amid concern about an impending global glut.

This week, traders will also be keeping an eye on policy decisions at the European Central Bank and Bank of England, while jobs data in Australia and economic activity gauges in Europe are also due.

“Everything is transitory and so was the inflation shock in Europe. It is abating fast due to its supply-side nature, forceful monetary policy reaction and a stagnant economy,” Barclays Bank Plc economists led by Christian Keller wrote in a note to clients. “The ECB is likely to acknowledge this in its new forecasts, but likely erring on the side of caution in its communication.”

Read More: Skewed ECB Rate-Cut Bets Are at Risk No Matter What Lagarde Says

Key events this week:

  • Argentina new President Javier Milei expected to call congress into extraordinary session, Monday

  • UK’s CBI publishes latest economic forecast, Monday

  • RBA Governor Michele Bullock speaks, Tuesday

  • Japan producer prices, Tuesday

  • India inflation, Tuesday

  • Brazil inflation, Tuesday

  • UK unemployment, Tuesday

  • US inflation, Tuesday

  • Eurozone industrial production, Wednesday

  • South Africa inflation, Wednesday

  • Brazil rate decision, Wednesday

  • Federal Reserve rate decision, Wednesday

  • Australian unemployment, Thursday

  • New Zealand GDP, Thursday

  • Philippines rate decision, Thursday

  • Taiwan rate decision, Thursday

  • ECB rate decision, Thursday

  • BOE rate decision, Thursday

  • Norway rate decision, Thursday

  • US retail sales, Thursday

  • China 1-year MLF, Friday

  • China retail sales, industrial production and jobless rate, Friday

  • Eurozone PMIs, Friday

  • UK manufacturing PMI, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures were little changed as of 8:16 a.m. Tokyo time

  • Australia’s S&P/ASX 200 rose 0.4%

  • Nikkei 225 futures rose 1%

  • Hang Seng futures fell 0.2%

Currencies

  • The Australian dollar was little changed at $0.6582

  • The euro was little changed at $1.0767

  • The Japanese yen was little changed at 144.82 per dollar

  • The offshore yuan was little changed at 7.1857 per dollar

Cryptocurrencies

  • Bitcoin fell 0.4% to $43,617.5

  • Ether fell 0.4% to $2,351.8

Bonds

Commodities

  • West Texas Intermediate crude fell 0.2% to $71.09 a barrel

  • Spot gold rose 0.1% to $2,007.29 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Michael G. Wilson.

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©2023 Bloomberg L.P.

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