Asia Tracks Wall Street Drop On Pared Rates Call: Markets Wrap

(Bloomberg) -- Asian stocks fell Tuesday, following losses on Wall Street amid concerns that aggressive bets on the Federal Reserve unwinding monetary tightening may be over-optimistic. (Bloomberg) -- Asian stocks fell Tuesday, following losses on Wall Street amid concerns that aggressive bets on the Federal Reserve unwinding monetary tightening may be over-optimistic. Australian and Japanese shares slipped at the open, while Hong Kong equity futures also trended down after the S&P 500 fell from the highest since March 2022. The Nasdaq 100 dropped 1% on Monday after a rout in megacaps. US futures inched lower in early Asian trading. The yen whipsawed after Tokyo inflation data fell short of estimates. Consumer prices rose 2.6% on an annual basis in November, short of the 3% forecast by economists and marking a slowdown from the prior month’s 3.3% reading. Investors will also be monitoring a sale of 10-year Japanese government bonds today. Treasuries opened steady in Asia after a fall in the previous session added nine basis points to the two-year yield. The dollar held a Monday rally, as did Bitcoin, which hovered near $42,000 after frenzied speculation in cryptocurrencies. In Asia, investors are looking to Caixin PMI data due later today. China has reasserted its focus on enhancing the quality of credit, pledging to keep the growth of money supply in check and offer better support to key sectors. Meanwhile, China Evergrande Group won breathing room to strike a restructuring agreement with creditors, sending its shares higher Monday. US jobs data later in the week will help identify the prospect for a soft landing in the world’s largest economy as investors price in rate cuts in 2024. Nearly 125 basis points of easing are priced in through next year’s December Fed meeting — equal to about five quarter-point cuts. “Markets are approaching the limits of what can plausibly be priced without attaching material odds of a recession in the near term,” Goldman Sachs Group Inc. strategists including Praveen Korapaty wrote. US stocks are headed for a rocky end to the year, according to Morgan Stanley’s Michael Wilson. The strategist said December could bring “near-term volatility in both rates and equities” before more constructive seasonal trends as well as the “January effect” support equities next month. Volatile Markets The Fed’s next steps could help reignite volatility that has recently shown signs of anemia. Technically “overbought” conditions and bullish positioning have left markets vulnerable to corrections after the historic rallies in both equities and Treasuries last month. “The biggest near-term risk for the markets could simply be that after a phenomenal one-month rally, a period of consolidation may be a necessary breather,” said Jason Draho at UBS Global Wealth Management. “A lot of good news is priced in, and investors seeing little imminent downside risk does make the markets vulnerable to even small disappointments.” Read: Treasury Strategists Debate Timing of Fed Cuts: Research Roundup Source: Bloomberg The percentage of S&P 500 stocks trading above their 50-day moving averages has surged to 84% — indicating broad participation during the recent rally, according to data compiled by Bespoke Investment Group. Meantime, the closely watched bull-bear spread from the American Association of Individual Investors survey recently showed the most-bullish stance for the group since July, nearing levels not seen since April 2021. The S&P 500 posted an average daily move of 0.3% in either direction last week, its tamest swings in half a year, as the market lost some momentum toward the end of its second-best November since 1980. The Cboe Volatility Index, also known as the VIX, approached this year’s lowest levels last Friday after Fed Chair Jerome Powell gave his clearest signal yet that officials have finished raising interest rates. “All eyes will be on Friday’s monthly jobs report to see if it confirms the cooling trend we saw most of last month,” Chris Larkin at E*Trade from Morgan Stanley said. “If it doesn’t, it may renew concerns the Fed’s 2024 pivot to rate cuts could be delayed.” Read: Most Expect Their Investments to Do Better in 2024: MLIV Pulse Crude edged higher, on pace to end three daily declines amid persistent skepticism that the latest OPEC+ supply cuts will tighten the market. Gold also rebounded after Monday selling, when it initially touched a fresh record high. Brad Gibson, Head of Asia Pacific Fixed Income at AllianceBernstein, discusses his outlook for the Asian fixed income market. He speaks with Shery Ahn and Haidi Stroud-Watts on “Daybreak Asia”.Source: Bloomberg Key events this week: China Caixin services PMI, Tuesday Eurozone S&P Global Services PMI, PPI, Tuesday US ISM Services, Job openings, Tuesday Eurozone retail sales, Wednesday Germany factory orders, Wednesday US ADP private payrolls, trade balance, Wednesday CEOs of the biggest banks on Wall Street, including JPMorgan, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America, expected to testify on regulatory oversight to the Senate banking committee, Wednesday Bank of Canada monetary policy meeting, Wednesday Bank of England issues biannual stability report on UK financial system, holds news conference, Wednesday China trade, forex reserves, Thursday Eurozone GDP, Thursday Germany industrial production, Thursday US wholesale inventories, initial jobless claims, Thursday Germany CPI, Friday Japan household spending, GDP, Friday Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday US jobs report, University of Michigan consumer sentiment, Friday WATCH: Greg Peters at PGIM Fixed Income talks about markets.Source: Bloomberg Some of the main moves in markets: Stocks S&P 500 futures fell 0.2% as of 9:33 a.m. Tokyo time. The S&P 500 fell 0.5% Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 1% Hang Seng futures fell 0.3% Nikkei 225 futures (OSE) fell 0.6% Japan’s Topix fell 0.2% Australia’s S&P/ASX 200 fell 1% Euro Stoxx 50 futures rose 0.1% Currencies The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.0841 The Japanese yen was little changed at 147.15 per dollar The offshore yuan was little changed at 7.1460 per dollar The Australian dollar was little changed at $0.6616 Cryptocurrencies Bitcoin fell 0.6% to $41,790.71 Ether rose 0.2% to $2,239.31 Bonds The yield on 10-year Treasuries was little changed at 4.25% Australia’s 10-year yield declined two basis points to 4.43% Commodities West Texas Intermediate crude rose 0.3% to $73.24 a barrel Spot gold rose 0.5% to $2,039.51 an ounce This story was produced with the assistance of Bloomberg Automation. More stories like this are available on bloomberg.com ©2023 Bloomberg L.P.