Asia Fed hikes interest rates, China’s reopening lifts yuan

  • US stock futures rise, Nikkei futures fall
  • Hopefully the US CPI report will lead to smaller Fed hikes
  • Earnings season begins with the big banks on Friday
  • The dollar nurses losses, the yuan is the highest since mid-August

SYDNEY, Jan 9 (Reuters) – Asian stocks rose on Monday as hopes for less aggressive U.S. interest rate hikes and China’s opening of borders bolstered the outlook for the global economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 2.0% to a five-month high, while South Korean shares (.KS11) gained 2.2%.

Chinese blue chips (.CSI300) rose 0.7%, while Hong Kong shares (.HSI) rose 1.4%. The Chinese yuan also strengthened below 6.8000 to its highest level since mid-August.

Japan’s Nikkei (.N225) closed for a strike, but futures traded at 26,215, compared with Friday’s cash close of 25,973.

S&P 500 futures added 0.2% and Nasdaq futures added 0.3%. EUROSTOXX 50 futures were up 0.6%, while FTSE futures were up 0.3%.

Earnings season kicks off this week with major U.S. banks, the Street fears no year-over-year growth in overall earnings.

“Excluding energy, S&P 500 EPS (earnings per share) are expected to decline 5%, driven by a margin squeeze of 134 bp,” Goldman Sachs analysts wrote. “Entering the reporting season, earnings revisions are historically negative.

“We expect further downward revisions to consensus 2023 EPS forecasts,” they said. “China’s reopening is one of the upside risks to 2023 EPS, but margin pressures, taxes and recession present more downside risks.”

One sign of the tension came from reports that Goldman will begin cutting thousands of jobs within the firm starting Wednesday as it braces for a tough economic environment. read more

In Asia, Beijing has now opened borders that have been completely closed since the start of the COVID-19 pandemic, allowing traffic within the country to increase. read more

Bank of America analyst Winnie Wu expects China’s economy, the world’s second-largest economy, to benefit from a cyclical upturn in 2023, and expects the market to be buoyed by both multiple expansion and 10% EPS growth.


Sentiment on Wall Street was buoyed last week by a good mix of solid U.S. wage growth and slower wage growth, coupled with a sharp drop in activity in the services sector. The market cut bets on a Federal Reserve rate hike.

Fed fund futures now suggest a half-point increase of about 25% in February, up from about 50% a month ago.

That will make investors highly sensitive to anything Fed Chairman Jerome Powell has to say at the central bank conference in Stockholm on Tuesday.

It also adds to Thursday’s US consumer price index (CPI) data, which showed annual inflation slowing to a 15-month low of 6.5% and the core rate falling to 5.7%.

NatWest Markets analyst John Briggs said: “We are below consensus CPI forecasts at NatWest, which is likely to strengthen market prices by 50bps versus 25bps.”

“In context, it should be seen as a Fed that is still likely to hike several times and then keep rates high until inflation is assured – for us that means a 5-5.25% funds rate.”

Friday’s mixed data had already seen US 10-year yields fall 15 basis points to 3.57%, while dragging the US dollar lower across the board.

Early Monday, the euro was firm at $1.0673, up from $1.0482 on Friday. The dollar fell to 131.48 yen, away from last week’s peak of 134.78, while the index was at 103,600.

Brazil’s real has yet to trade after hundreds of supporters of far-right former president Jair Bolsonaro were arrested after occupying the country’s Congress, presidential palace and Supreme Court. read more

A weaker dollar and lower yields have been a boon for gold, pushing it to an eight-month high of around $1,877 an ounce.

Oil prices were steady after sliding around 8% last week amid demand concerns.

Brent rose 80 cents to $79.37 a barrel, while US crude oil rose 78 cents to $74.55/barrel.

Reporting by Wayne Cole; Edited by Bradley Perrett and Christopher Cushing

Our standards: Thomson Reuters Trust Principles.

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