SINGAPORE, Oct 27 — Asian equities gained for a third straight day on Thursday, on growing hopes that major central banks could start slowing the pace of interest rate hikes, with the European Central Bank’s meeting later in the day in focus for further clues.
MSCI’s broadest index of Asia-Pacific shares outside Japan rallied 1.24 per cent and a rebounding Hong Kong again led gains.
There were, however, some signs of flagging momentum and European futures indicated stocks were set to decline ahead of the ECB’s rate decision, with markets expecting a 75 basis-point rate hike.
Eurostoxx 50 futures STXEc1 were down 0.28 per cent, while German DAX futures FDXc1 fell 0.20 per cent and FTSE futures FFIc1were 0.23 per cent lower. US futures ESc1 rose 0.7 per cent.
The impending ECB decision comes after the Bank of Canada on Wednesday surprised markets when it announced a smaller-than-expected rate rise, weeks after Australia’s central bank made a similar move.
All of this has increased speculation that the Federal Reserve may soon slow its aggressive policy tightening, blunting the dollar’s rally and pushing Treasury yields lower.
“The pivot story from the United States is really beginning to look more plausible,” said ING’s regional head of research Robert Carnell, adding this was driven in part by the move from Bank of Canada.
The market is looking for guidance on the pivot story, Carnell added. “Has the dollar had its day? ... We won’t know that until the FOMC meeting.”
The Fed is expected to raise interest rates by 75 basis points again next week although there is some anticipation it will slow the pace of tightening and hike by a half point in December.
Carnell said the Fed’s forward guidance next week will be incredibly important, pointing out that there has been a slight softening of the stance from the central bank on its tightening policy.
Rolling recessions
In Asia, Australia’s resources-heavy share index .AXJO advanced 0.5 per cent, while Japan’s Nikkei .N225 was down 0.3 per cent.
China’s stock market .SSEC edged lower as bleak industrial profit figure and widening Covid-19 outbreaks weighed on sentiment. Hong Kong’s Hang Seng .HSI added 2 per cent, but had come down from the day’s highs as bargain hunters’ enthusiasm ebbs.
Chinese stocks have had a turbulent week, headlined by Monday’s brutal sell-off as global investors dumped Chinese assets, worried that President Xi Jinping’s new leadership team would put ideology before the economy.
In the currency markets, the euro EUR=EBS is above US$1 for the first time in five weeks and last bought US$1.1008. The greenback was on the back foot against most other major currencies, and especially on the yen, with dollar/yen down 0.9 per cent to 145.15.
The greenback’s retreat has come in tandem with a bond rally and lifted commodity prices. Spot gold XAU= was flirting with two-week high it touched on Wednesday.
Oil prices were firm, and held overnight gains, with Brent crude futures LCOc1 at US$95.78 a barrel.
The principal challenge for central banks across the globe is to devise a path of policy that extinguishes inflation, but must also consider the implications for growth and employment, Citi strategists said in a note.
At the country level, Citi expects a series of “rolling recessions” with downturns appearing in the euro area and UK late this year and in the United States in mid-2023.
Earnings reports from Facebook parent Meta Platforms IncMETA.O on Wednesday and Samsung Electronics Co Ltd 005930.KS are starting to show signs that the slowdown has arrived.
Quarterly reports from Amazon AMZN.O and Apple AAPL.O due on Thursday will provide further detail on how companies are faring and framing their outlooks.
Embattled Credit Suisse CSGN.S on Thursday also outlined a long-awaited overhaul that will raise capital and separate out its investment bank, along with a US$4 billion loss. — Reuters
