© Reuters. FILE PHOTO: A pedestrian with his mobile phone walks past electronic boards displaying Japan’s Nikkei average (top left) and the Japanese yen against the euro exchange rate (top right) in front of a stock exchange in Tokyo, Japan, February 9, 2016. REUTERS/ Yuya Sh
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by Wayne Cole
SYDNEY (Reuters) – Asian stocks rose on Monday as bond markets held their breath ahead of an update on the US rates outlook.
There was some disappointment that Beijing chose to lower its growth outlook to a 5% target, instead of the 5.5% or higher favored by the market, but the recent series of real data has been strong enough to to maintain investor optimism.
MSCI’s broader index of Asia-Pacific shares outside Japan rose 0.8%, after rebounding 1.5% last week.
It rose 1.0% to a three-month high, while South Korean stocks added 0.6% helped by a softer reading on inflation.
it fell 0.1% and Nasdaq futures 0.2%, after rebounding on Friday as bond yields eased a bit.
10-year Treasury yields were at 3.970%, after last week’s rally to 4.09% proved tempting enough to attract buyers.
Markets have resigned themselves to more rate hikes from the Federal Reserve, but expect it to stick with quarter-point moves rather than return to half-point hikes.
San Francisco Fed President Mary Daly reiterated Saturday that rates would have to rise, but set a high bar for moving to half-point hikes.
Futures imply a 72% chance the Fed will raise 25 basis points at its March 22 meeting.
All of which sets the stage for Fed Chairman Jerome Powell’s testimony before Congress on Tuesday and Wednesday, where he will no doubt be asked whether larger hikes are needed.
However, a lot could depend on what the February payroll report reveals on Friday. Forecasts call for a more modest rise to 200,000 after January’s impressive jump to 517,000, but risks are to the upside.
And that will be followed by the February CPI report on March 14.
KURODA LEAVES
“Powell’s testimony comes before the payrolls and inflation numbers, so he is likely to avoid committing to policy,” said Jan Nevruzi, an analyst at NatWest Markets.
“Payrolls are due on the last day that Fed officials can publicly discuss monetary policy, but CPI will be released during the blackout period,” it added. “If we end up in a situation where the jobs and inflation numbers present a mixed picture, the outcome of the Fed meeting could be even more difficult to predict.”
The Fed isn’t the only one warning of further tightening.
In an interview published over the weekend, European Central Bank President Christine Lagarde said it was “very likely” that they would raise interest rates by 50 basis points this month and that the bank had more work to do with the inflation.
Australia’s central bank is expected to raise rates by 25 basis points on Tuesday, while the Bank of Canada will pause after raising rates a record 425 basis points in 10 months.
Friday marks the final policy meeting for Bank of Japan Governor Haruhiko Kuroda before Kazuo Ueda takes the reins in April, and all eyes are on the fate of his yield curve control stance ( YCC).
“No changes are expected, but we should not completely rule out the possibility of Kuroda coming out in force via the BoJ announcing another adjustment to YCC’s 0% tolerance band,” NAB analysts noted in a note.
The BOJ rocked markets in December when it unexpectedly widened the allowed trading band for 10-year bond yields to between -50 and +50 basis points.
So far, Ueda has sounded bearish on the outlook for the policy that has kept the yen on a softer trend. The dollar was trading at 135.95 yen after hitting a three-month high of 137.10 last week.
The euro held at $1.0629, just below its recent seven-week low of $1.0533, while holding a fraction firmer at 104.610.
Friday’s decline in bond yields helped gold regain some ground and it was trading at $1,855 an ounce. (GOAL/)
Oil prices fell, perhaps disappointed by China’s latest growth target. (EITHER)
it fell 33 cents to $85.50 a barrel, while it fell 30 cents to $79.38 a barrel.
