(Bloomberg) – Asian stocks rose on Monday as positive earnings momentum on Wall Street and signs of moderating U.S. inflation extended the rally in global equities this year. The yuan appreciated after the Chinese central bank set a stronger than expected value for the currency.
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Japan’s Topix index was on course for another gain that saw the index repeatedly hit new highs until the mid-1990s. Stocks were also higher in South Korea, in Australia and China, with notable strength in Hong Kong-listed tech stocks.
Shares of Asian electric vehicle makers and associated suppliers soared after Tesla Inc. delivered a record number of cars globally in the second quarter.
Meanwhile, the Bank of Japan’s manufacturing sentiment survey showed confidence among the country’s big manufacturers rose, the first improvement in nearly two years. Sentiment among non-manufacturers was also better.
U.S. stock futures were flat in the early hours of Asia on Monday. The Nasdaq 100 rose nearly 2% last week and landed its best first half ever, with Apple Inc. crossing the $3 trillion milestone along the way. The S&P 500 hit its highest since April 2022 and posted its best first half since 2019.
Traders were encouraged as the data showed that inflation is moderating, albeit at the expense of growth. The personal consumption expenditure price index, one of the Federal Reserve’s favorite inflation indicators, rose 0.1% in May. Over the past year, the measure has fallen to 3.8%, the lowest annual increase in more than two years.
That kept bond market action subdued on Friday after what was a turbulent first half for the rates market. Treasuries stabilized on Monday, while yields on policy-sensitive three-year Australian government bonds fell nearly seven basis points.
Major currencies were confined to tight ranges against the dollar after an indicator of greenback strength slipped 0.3% on Friday, extending losses this year. The yuan rose after the People’s Bank of China once again issued a stronger than expected correction for the currency.
Manufacturing PMI data from Caixin China showed the world’s second-largest economy was still struggling to rebound. Traders will also be weighing the implications of Chinese President Xi Jinping’s appointment of a longtime technocrat as the top Communist Party central bank official, which may not signal any drastic change in policy at this time.
The yen has been slightly weaker and is the worst performing Group of 10 currency this year. Investors will watch for central bank intervention if the yen weakens further.
For now, the BOJ seems willing to act when officials think things are seriously out of balance, according to Sean Callow, senior currency strategist at Westpac Banking Corp. However, until the BOJ adjusts policy and the Federal Reserve maintains tight policy longer, “they cannot realistically expect strong yen appreciation,” he said on Bloomberg Television. “They can only really monitor speculators.”
Oil was slightly lower at the start of the second half as traders focused on demand challenges and complex supply prospects.
From the United States to markets around the world, the rally in equities has prompted concern as well as celebration, given how much it appears to have decoupled from a deteriorating economic backdrop.
Nearly $5 trillion has been added to the value of Nasdaq 100 companies year-to-date, with the tech-heavy gauge defying bubble warnings and jumping nearly 40%. The advance of the most influential group in the S&P 500 helped push the index up 16% in 2023. The gains were even more pronounced when narrowed to the megacap space – which climbed 74 %.
While history shows that Nasdaq 100 rallies of at least 10% in the first half are followed by average returns of around 14% in the second half, there are concerns about valuations. This has recently spurred an increase in bearish bets against the biggest tech companies. Short-term interest as a percentage of stocks available for trading is near 12-month highs for Microsoft Corp., Tesla Inc. and Amazon.com Inc., according to data compiled by S3 Partners.
Key events this week:
Eurozone S&P Eurozone Global Manufacturing PMI, Monday
UK S&P Global/CIPS UK Manufacturing PMI, Monday
U.S. Construction Spending, ISM Manufacturing, Light Vehicle Sales, Monday
Australia interest rate decision on Tuesday
United States Independence Day National Day. Financial markets closed, Tuesday
Chinese Caixin Services and Composite PMI, Wednesday
Eurozone S&P Eurozone Global Services PMI, PPI, Wednesday
OPEC’s international seminar, with speakers including OPEC+ oil ministers, kicks off in Vienna on Wednesday
FOMC releases minutes of June policy meeting on Wednesday
New York Fed Chairman John Williams in a “fireside chat” at a meeting of the Central Bank Research Association at the New York Fed on Wednesday
U.S. initial jobless claims, trade, ISM services, job openings, Thursday
Dallas Fed Chair Lorie Logan speaks during a panel on policy challenges for central banks at the CEBRA meeting on Thursday
U.S. unemployment rate, nonfarm payrolls, Friday
ECB’s Christine Lagarde speaks at the REAIX 2023 event in Aix-en-Provence, France, on Friday
Some of the major movements in the markets:
S&P 500 futures were little changed at 10:53 a.m. Tokyo time. The S&P 500 rose 1.2% on Friday
Nasdaq 100 futures were little changed. The Nasdaq 100 rose 1.6%
Japan’s Topix rose 1.3%
Hong Kong’s Hang Seng index rose 1.2%
China’s Shanghai Composite Index rose 0.6%
Australia’s S&P/ASX 200 index rose 0.3%
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0908
The Japanese yen fell 0.1% to 144.50 per dollar
The offshore yuan rose 0.2% to 7.2561 to the dollar
The Australian dollar fell 0.2% to $0.6653
Bitcoin rose 0.3% to $30,672.83
Ether rose 1.4% to $1,945.75
West Texas Intermediate Crude Little Changed
Spot gold fell 0.1% to $1,917.30 an ounce
This story was produced with assistance from Bloomberg Automation.
–With the help of Rita Nazareth.
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