Asia splits on Fed bets, reopening of China lifts yuan

SYDNEY, Jan 9 (Reuters) – Asian shares rose on Monday as hopes of less aggressive U.S. interest rate hikes and the opening of China’s borders boosted 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, with South Korean shares (.KS11) rising 2.2%.

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

Japan’s Nikkei (.N225) was closed due to a holiday, but futures traded at 26,215, compared with a cash close on Friday of 25,973.

S&P 500 futures rose 0.2% and Nasdaq futures 0.3%. EUROSTOXX 50 futures rose 0.6%, while FTSE futures gained 0.3%.

Earnings season kicks off this week with the big US banks, with the Street fearing no year-over-year growth at all in overall earnings.

“Excluding Energy, S&P 500 EPS (earnings per share) are expected to fall 5%, driven by 134 bp of margin compression,” analysts at Goldman Sachs wrote. “Going into the reporting season, the earnings revision is negative relative to history.

“We expect further downward revisions to consensus 2023 EPS forecasts,” they added. “China reopening is an upside risk to 2023 EPS, but margin pressure, taxes and recession pose bigger downside risks.”

A sign of the strain came from reports Goldman would begin cutting thousands of jobs across the firm from Wednesday as it prepares for a tough economic environment. read more

In Asia, Beijing has now opened borders that had been virtually closed since the start of the COVID-19 pandemic, allowing an increase in traffic across the nation. read more

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

FADING BOLD

Sentiment on Wall Street was boosted last week by a benign mix of solid US wage growth and lower wage growth, combined with a sharp drop in service sector activity. The market reduced bets on rate hikes by the Federal Reserve.

Fed fund futures now imply around a 25% chance of a half-point increase in February, down from around 50% a month ago.

That will make investors extremely sensitive to anything Fed Chair Jerome Powell might say at a central bank conference in Stockholm on Tuesday.

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

“We at NatWest have lower than consensus CPI forecasts and if correct that is likely to strengthen market prices at 25bps vs 50bps,” NatWest Markets analyst John Briggs said.

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

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

By early Monday, the euro was holding steady at $1.0673, having bounced from a low of $1.0482 on Friday. The dollar fell to 131.48 yen, off last week’s peak of 134.78, while the index was flat at 103.600.

The Brazilian real had yet to trade after hundreds of supporters of far-right former president Jair Bolsonaro were arrested after invading the country’s congress, presidential palace and supreme court. read more

The fall in the dollar and yields were a boon for gold, lifting it to an eight-month high around $1,877 an ounce.

Oil prices were steadier, after falling about 8% last week on concerns about demand.

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

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

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