Asia braces for disappointment on China rate cuts
SYDNEY — Asian markets held their breath on Monday as investors waited to see how serious Beijing was about policy easing via widely expected rate cuts, having so far sorely disappointed with its stimulus steps.
China is expected to cut lending benchmarks by between 10 and 15 basis points on Monday, with many analysts predicting a big reduction to the mortgage reference rate to revive credit demand and shore up the ailing property sector.
The central bank on Sunday said Beijing would coordinate financial support to resolve local government debt problems, and there have been reports it was encouraging commercials banks to lend more.
Investors, however, would prefer massive fiscal spending to minor rate cuts and there is little sign of that as yet. The caution kept MSCI’s broadest index of Asia-Pacific shares outside Japan near flat, having slid 3.9% last week to its lowest for the year so far.
Japan’s Nikkei edged up 0.2%, but that follows a 3.2% slide last week.
S&P 500 futures were 0.1% firmer, while Nasdaq futures added 0.2%. Earnings from AI-darling Nvidia on Wednesday will be a major test of valuations.
Analysts are concerned the market has got too long, especially of tech, leaving it vulnerable to a deeper pullback.
BofA’s latest survey of fund managers found sentiment was the least bearish since February 2022, while cash levels were at nearly a two-year low, and 3 out of 4 surveyed expect a soft landing or no landing for the global economy.
Analysts at Goldman Sachs, meanwhile, argue there is still scope for investors to add to equity positions.
“The re-opening of the buy-back blackout window will provide a boost to equity demand in coming weeks although a flurry of expected equity issuance this fall may provide a partial offset,” they wrote in a note.
Stock valuations have been pressured in part by a sharp rise in bond yields, with the U.S. 10-year hitting 10-month highs last week at 4.328%.
Early Monday, yields were holding at 4.253% and a break above 4.338% would take them to levels not seen since 2007.
Markets assume Federal Reserve Chair Jerome Powell will note the jump in yields at the Jackson Hole conference this week, and the recent run of strong economic data. The Atlanta Fed’s GDP Now tracker is running at a heady 5.8% for this quarter.
“It’s an opportunity for Powell to give an updated assessment on economic conditions, which now appear stronger than anticipated and reinforce the case for additional rate hikes,” said Barclays analyst Marc Giannoni.
“Even so, we would be surprised if he provided specific guidance, with key August prints for employment, CPI and retail sales all to come before the September meeting.”
A majority of polled analysts think the Fed is done hiking, while futures imply around a 31% chance of one more increase by December.
The rise in yields has helped the dollar notch five weeks of gains and a nine-month top on the Japanese yen at 146.56. On Monday, it was trading at 145.32 with the market wary of risk of Japanese intervention. [USD/]
The euro was also firm at 157.96 yen, but under pressure from the dollar at $1.0871 after losing 0.7% last week.
The ascent of the dollar and yields was weighing on gold at $1,888 an ounce, having touched a five-month low last week. [GOL/]
Oil prices have snapped a seven-week winning streak as concerns about Chinese demand offset tight supplies. [O/R]
Brent was down 11 cents to $84,69 a barrel, while U.S. crude fell 1 cent to $81.25 per barrel.
Prices for liquefied natural gas (LNG) were underpinned by the risk of a strike at Australian offshore facilities that could affect around 10% of global supply.