Election surprise lifts Nikkei, Fed keeps dollar bid

SINGAPORE (Reuters) – Asian stocks wavered on Monday, with Japanese companies catching a post-election boost but weak Chinese data weighing on the broader mood ahead of policy meetings in the United States, Britain and Australia that are set to define the rates outlook.

Passersby wearing protective face masks walk past an electronic board displaying world stock indexes, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan November 1, 2021. REUTERS/Issei Kato

Japan’s Nikkei rose 2.3% to a one-month high after Prime Minister Fumio Kishida’s Liberal Democratic Party won a unexpectedly comfortable victory, raising hopes for stability and stimulus in the term ahead.

Trade elsewhere was soft, with MSCI’s index of Asia-Pacific shares outside Japan dragged 0.4% lower by selling in Hong Kong after weekend data showed a sharper-than-expected contraction of Chinese factory activity.

S&P 500 futures and FTSE futures drifted 0.2% higher, European futures rose 0.6%. Bond markets were calm following the brutal sell-off in short-term rates last month as surging inflation reshaped investors’ outlook.

Commodities also stabilised, with a slight easing of oil prices and a further drop in Chinese coal prices pushing them 50% below last month’s record high.

“I think we may come out of (the) week past peak yield volatility, or at least, past peak rate hike fever,” said NatWest Markets strategist John Briggs.

“A lot of the things that went parabolic and took market rate hike expectations to a boil are at least looking like they are calming a bit.”

The yield on two-year Treasuries, which had soared to an almost 20-month high of 0.5640% last week was last up about 1.6 basis points at 0.5169%. Benchmark 10-year Treasury yields were steady at 1.5627%. [US/]

In currency markets, the dollar held sharp Friday gains and traded firmly in the Asia session. It rose as far as 114.26 yen and climbed 0.1% to $1.1546 per euro. [FRX/]

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Brent crude futures traded 0.3% lower at $83.47 a barrel and U.S. crude fell 0.4% to $83.20. [O/R]

LIVE MEETINGS

The Fed is the highlight of a week full of central bank meetings likely to move markets, with policy adjustments possible at the Bank of England and Reserve Bank of Australia.

The Fed, which concludes a two-day meeting on Wednesday, is expected to say it will start to taper bond purchases, though markets’ focus is on clues about rates lift-off.

Fed funds futures are pricing hikes beginning early in the second half of 2022 and Goldman Sachs on Friday pulled forward its hike forecast to July next year from the third quarter of 2023.

“While maintaining the view that most of the inflation we are seeing will prove transitory, a risk management mindset has taken over, and developed market central banks are now changing tack,” analysts at Goldman Sachs said in a late-Friday note.

“The Bank of England looks likely to raise rates (and) the Reserve Bank of Australia appears to have abandoned its yield curve peg.”

Swaps pricing points a better-than-even chance of the Bank of England hiking on Thursday while the Reserve Bank of Australia will likely make some sort of guidance adjustment after again declining to defend its yield target on Monday.

Nevertheless, a bid crept back in to Australia’s battered bond market, lifting three-year Australian government bond futures 18 ticks to 98.780. [AUD/]

Sterling edged to a two-week low of $1.3663. [GBP/]

Ahead on the data front are purchasing managers index figures in Scandinavia, Britain and the United States.

Asian readings were mixed, with Caxin’s survey confounding Sunday’s soft official reading and surveys in Thailand, Malaysia, Vietnam and Indonesia strong, against a slowdown in South Korea.

Gold nursed Friday losses against a stronger U.S. dollar and bought $1,784 an ounce. Bitcoin held its $60,000 support level.

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