Asia shares firm, China sets a cautious target for growth
- Nikkei at three-month high, S&P 500 futures firm
- China cuts stock after Beijing sets growth target of 5%
- Markets support Powell, BOJ, BOC and RBA meetings
- February wages a big test for US interest rate expectations
SYDNEY, March 6 (Reuters) – Asian shares rose on Monday as bond markets held their breath ahead of an update on the U.S. interest rate outlook from the world’s most powerful central banker and a jobs report that could decide whether the next hike will have to be super-big.
There was some disappointment that Beijing chose to cut its growth outlook to a target of 5%, rather than the 5.5% plus that the market favored, but the latest uptick in actual data has been strong enough to keep investors optimistic .
Chinese blue chips (.CSI300) fell 0.5%, after gaining 1.7% last week. MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) was still up 0.7%.
Japan’s Nikkei (.N225) climbed 1.2% to a three-month high, while South Korean shares (.KS11) added 1.0% helped by a softer reading on inflation.
EUROSTOXX 50 futures gained 0.5%, while FTSE futures were flat. S&P 500 futures rose 0.2% and Nasdaq futures 0.4%, after gains on Friday as bond yields eased back slightly.
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The 10-year Treasury yield was at 3.94%, after last week’s peak of 4.09% proved tempting enough to attract buyers.
Markets have been resigned to more rate hikes from the Federal Reserve, but hope it will stick to quarter-point moves rather than reverting to half-point hikes.
San Francisco Fed President Mary Daly reiterated on Saturday that interest rates must rise, but set a high bar for half-point increases.
Futures imply a 72% chance that the Fed will move by 25 basis points at the March 22 meeting.
All of this sets the stage for Fed Chair Jerome Powell’s testimony to Congress on Tuesday and Wednesday, where he will no doubt be asked whether more hikes are needed.
However, much may depend on what the February payrolls report reveals on Friday. Forecasts are centered on a more modest increase of 200,000 after January’s jump of 517,000, but risks are on the upside.
And that will be followed by the February CPI report on March 14.
KURODA BOWS OUT
“Powell’s testimony comes before the wage and inflation numbers, so he is likely to avoid committing to a policy path,” said Jan Nevruzi, analyst at NatWest Markets.
“Payrolls are due on the last day when Fed officials can publicly discuss monetary policy, but the CPI will be released during the blackout period,” he added. “If we end up in a situation where the number of jobs and inflation give a conflicting view, the outcome of the Fed meeting could become even more difficult to predict.”
The Fed is hardly alone in announcing further tightening.
In an interview published at 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 on inflation.
Australia’s central bank is expected to raise interest rates by 25 basis points on Tuesday, while the Bank of Canada is seen on hold after raising rates at a record pace of 425 basis points in 10 months.
Friday marks the last policy meeting for Bank of Japan Governor Haruhiko Kuroda before Kazuo Ueda takes over the reins in April, and all eyes are on the fate of its yield curve control (YCC) stance.
“No change is expected, but we should not completely rule out the chance of Kuroda going out with a bang via the BoJ announcing a new adjustment to the 0% YCC tolerance band,” analysts at NAB noted in a note.
The BOJ jolted 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 dovish on the outlook for policies that have kept the yen in a softer trend. The dollar was last at 135.61 yen after hitting a three-month high of 137.10 last week.
The euro held at $1.0643, close to a seven-week low of $1.0533, while the dollar index was a fraction lower at 104.430.
Friday’s decline in bond yields helped gold recover somewhat, and it traded at $1,855 an ounce.
Oil prices fell, with investors perhaps disappointed that China did not set more ambitious growth targets.
Brent eased 62 cents to $85.21 a barrel, while US crude fell 59 cents to $79.09 a barrel.
Reporting by Wayne Cole; Editing by Shri Navaratnam
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