Global Risk-On Rally Extends as Asia Stocks Gain: Markets Wrap

(Bloomberg) — Asian stocks extended global stocks higher on positive momentum from Wall Street and signs of easing inflation in the United States. The yuan rose after China outlined a stronger-than-expected currency reform.

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Shares in Shanghai rose more than 1% while Hong Kong-listed technology companies jumped more than 3%. Shares of Asian electric car manufacturers and related suppliers also rose, benefiting from Tesla Inc. and BYD, which set sales records in the second quarter.

Japan’s Topix was on course for another gain as the index repeatedly hit highs last seen in the mid-1990’s amid improving confidence among major manufacturers.

The gains in Chinese stocks on Monday contrasted with a 6% drop in the MSCI Inc. China Index. in the first half. While many investors remain wary of China’s policy risks and tepid economic recovery, some point to attractive valuations.

“We remain positive in the market, mainly from a risk-reward perspective,” James Wang, head of China strategy in the investment research unit of UBS Group AG, said on Bloomberg TV. “The market still trades one standard deviation cheap compared to history, and two standard deviations cheap compared to the rest of the world.”

Euro Stoxx 50 contracts rose, while S&P 500 futures were flat while Nasdaq 100 futures rose. The US technology index rose about 2% last week and achieved its best level in the first half of the year. The S&P 500 reached its highest level since April 2022 and posted its best first half since 2019, with Apple Inc. to $3 trillion along the way.

Traders were encouraged as the data showed that inflation is easing, even if at the expense of growth. The personal consumption expenditures price index, one of the Fed’s preferred measures of inflation, rose 0.1% in May. A year ago, the measure fell to 3.8%, the smallest annual advance in more than two years.

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This action kept the bond market calm during the US session on Friday and again on Monday in Asia, after what was an eventful first half for the rate market.

Yields on three-year Australian government bonds fell nearly seven basis points on Monday ahead of the central bank’s decision on Tuesday that divided economists and financial markets over the prospects of a rate hike or pause.

Most of the major currencies were confined to narrow ranges against the dollar. The offshore yuan advanced about 0.2% after the People’s Bank of China again put in place a stronger-than-expected currency reform, although it pared gains.

China’s Caixin Manufacturing PMI data showed that the world’s second largest economy is still struggling to recover. Traders have also been weighing the implications of Chinese President Xi Jinping’s promotion of a long-serving technocrat to the Communist Party’s top central banker, which may indicate a lack of radical policy shifts at the moment.

The yen fell about 0.1% and remained the worst performer of the G10 this year, as traders await any intervention from the central bank in case the yen continues to decline.

Oil has stabilized as the second half begins, with traders focusing on challenging demand and a complex supply outlook.

From the US to markets around the world, the rally in stocks has sparked concern as well as celebration, given how detached they are from the deteriorating economic backdrop.

Nearly $5 trillion has been added to the value of companies in the Nasdaq 100 since the start of the year, with the measure of heavy technology defying bubble warnings and jumping nearly 40%. An advance in the S&P 500’s most influential group helped propel the index up 16% in 2023. The gains were most noticeable when pared down to megacap space – up 74%.

Main events this week:

• The Eurozone’s S&P Manufacturing PMI, on Monday

• S&P Global / CIPS UK Manufacturing PMI, Monday

• US construction spending, ISM manufacturing, light vehicle sales, Monday

• Australian interest rate decision, Tuesday

• United States National Day Independence Day. Financial markets are closed, Tuesday

• Caixin China Services and Composite PMI, Wed

• S&P Global Eurozone Services PMI, PPI, Wed

• The OPEC International Symposium, and speakers including OPEC+ oil ministers, kicks off in Vienna, Wednesday

• The Federal Open Market Committee releases the minutes of its June policy meeting, Wednesday

• New York Federal Reserve Bank President John Williams in a “side chat” at the Central Bank Research Association meeting at the Federal Reserve Bank of New York, Wednesday

• US Initial Jobless Claims, Commerce, ISM Services, Jobs, Thursday

• Dallas Federal Reserve Bank President Lori Logan speaks on a panel discussion about policy challenges for central banks at CEBRA meeting, Thursday

• US Unemployment Rate, Nonfarm Payrolls, Friday

• Christine Lagarde of the European Central Bank speaking at an event in France, Friday

Some of the major movements in the markets:

Stores

• S&P 500 futures were little changed as of 1:47 p.m. Tokyo time. The S&P 500 rose 1.2% on Friday

• Nasdaq 100 futures rose 0.1%. The Nasdaq 100 rose 1.6%.

• Japan’s Topix rose 1.4%.

• Hong Kong’s Hang Seng rose 1.7%.

• China’s Shanghai Composite Index rose 1.3%.

• Australia’s S&P/ASX 200 rose 0.6%

currencies

• The Bloomberg Spot Dollar Index has not changed

• The euro was little changed at $1.0916

• The Japanese yen was little changed at 144.45 per dollar

• The offshore yuan rose 0.2 percent to 7.2539 per dollar

• The Australian dollar was not changed much at $0.6668

Digital currencies

• Bitcoin rose 0.3% to $30,696.87

• Ether rose 1.6% to $1,949.54

bonds

• The yield on the 10-year Treasury note was little changed at 3.84%.

• The yield on 10-year Japanese bonds rose 0.5 basis points, to 0.400%.

• The 10-year yield in Australia fell four basis points to 3.99%.

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This story was produced with help from Bloomberg Automation.

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