Global Risk-On Rally Extends as Asia Stocks Gain: Markets Wrap

3 Jul 2023

Asian stocks continued to rise, following the upward trend in global stock markets, boosted by the positive performance of Wall Street and indications of inflation stabilization in the United States. The Chinese yuan appreciated as China established a currency fixing that surpassed expectations.

Popular articles on Bloomberg Leading Stories on Bloomberg

French protests start to calm down despite increasing economic losses.

It's becoming increasingly challenging to pursue the stock rally moving forward.

Tesla and BYD Achieve Unprecedented Sales Due to Strong Demand for Electric Cars.

United Airlines may reduce the number of flights operating from Newark as it is currently in search of additional gates in order to address the issue of delays.

Stocks in Shanghai saw an increase of over 1%, while technology companies listed in Hong Kong experienced a surge of more than 3%. Asian electric vehicle manufacturers and their suppliers also witnessed a rise in their share prices, benefiting from Tesla Inc. and BYD Co. both achieving record-breaking sales in the second quarter.

Japan's Topix index was poised for another increase, with the index regularly reaching peak levels not seen since the middle of the 1990s, due to enhanced optimism among major manufacturers.

Chinese stocks experienced gains on Monday, which is in contrast to the 6% decline observed in MSCI Inc.'s China Index during the initial half. Although numerous investors continue to be cautious due to policy risks and the sluggish economic recovery in China, a few are now highlighting the appealing valuations.

"We remain optimistic about the market, primarily considering the balance between risk and reward," commented James Wang, who leads the China strategy division at UBS Group AG's investment research unit, during an interview on Bloomberg Television. He continued, stating, "Compared to historical data, the market is still trading at a relatively low level of one standard deviation. In comparison to the global market, it is two standard deviations below average."

Contracts linked to the Euro Stoxx 50 saw an increase, while the futures for the S&P 500 remained unchanged and those tied to the Nasdaq 100 slightly rose. The technology index in the US experienced a nearly 2% growth last week and achieved its most successful first half of the year ever. The S&P 500 reached its highest point since April 2022 and had its best first half since 2019, with Apple Inc. reaching a milestone of $3 trillion in value during this period.

Traders received positive news as information indicated that inflation is slowing down, even though this came at the cost of economic growth. The personal consumption expenditures price index, which is a key measurement for the Federal Reserve to track inflation, increased by 0.1% in May. Compared to the previous year, this index decreased to 3.8%, marking the smallest annual increase in over two years.

The bond market remained calm during the US session on Friday and continued to be quiet on Monday in Asia, following a busy first half for the rates market.

The returns on the three-year Australian government bond, which are influenced by policy decisions, decreased by approximately seven basis points on Monday. This comes prior to the central bank's upcoming decision on Tuesday, which has economists and money markets divided on whether there will be an increase in interest rates or a decision to maintain the current rates.

The dollar restricted the movement of most significant currencies, keeping them within limited intervals. The offshore yuan experienced a slight increase of approximately 0.2% following the People’s Bank of China's decision to establish a stronger currency exchange rate than anticipated. However, the yuan's gain has been reduced since then.

The latest report on China's Caixin manufacturing PMI revealed that the country's economy, ranked second-largest globally, is still facing challenges in its recovery. Additionally, traders are considering the potential consequences of Chinese President Xi Jinping promoting a long-standing technocrat to the highest Communist Party position in the central bank. This move suggests that there might not be any significant policy changes in the near future.

The Japanese yen experienced a decline of approximately 0.1% and currently holds the title of the least successful currency among the Group-of-10. Traders are keeping a close eye on the situation, as any further depreciation of the yen might lead to interventions by the central bank.

Oil stabilized as the latter part of the year commenced, with traders directing their attention towards obstacles to demand and a complicated assessment of the supply.

From the United States to various global markets, the surge in stocks has caused both unease and jubilation, considering its apparent detachment from a deteriorating economic environment.

Since the beginning of the year, the value of companies in the Nasdaq 100 has increased by almost $5 trillion. Despite concerns about a bubble, this technology-focused index has risen by almost 40%. This impressive performance by the most influential group in the S&P 500 has also contributed to a 16% increase in the overall index in 2023. The gains have been particularly significant in the megacap space, where the value of companies has skyrocketed by 74%.

Important occurrences this week:

On Monday, the manufacturing Purchasing Managers' Index (PMI) for the Eurozone by S&P Global will be released.

On Monday, the PMI for UK Manufacturing will be released by S&P Global/CIPS.

Construction spending in the United States, the manufacturing index from the Institute for Supply Management (ISM), and the sales of automobiles on the lighter side of the spectrum are the focal points on Monday.

On Tuesday, there will be a significant event in Australia which will determine the decision regarding the interest rates.

The Fourth of July is a public holiday in the United States. On this day, the financial markets will not be in operation and there will be no trading on Tuesday.

On Wednesday, the services and composite purchasing managers' index (PMI) reported by China's Caixin revealed valuable insights.

S&P Global Eurozone services purchasing managers' index (PMI) and producer price index (PPI) are scheduled to be released on Wednesday.

The OPEC International Seminar starts in Vienna on Wednesday, with a lineup of speakers that includes oil ministers from OPEC+ countries.

The Federal Open Market Committee releases minutes regarding the June policy meeting on Wednesday.

New York Federal Reserve President John Williams engaged in a cozy conversation while participating in a gathering of the Central Bank Research Association at the New York Federal Reserve on Wednesday.

This week in the United States, there were reports on the number of people who filed for unemployment benefits for the first time, trade activities, the ISM services sector, and job openings. These updates were provided on Thursday.

Lorie Logan, President of the Federal Reserve Bank of Dallas, participates in a discussion regarding the obstacles faced by central banks in formulating policies at the CEBRA meeting held on Thursday.

The rate of unemployment in the United States and the number of jobs in sectors other than agriculture will be reported on Friday.

ECB's Christine Lagarde speaks at a gathering in France, on Friday.

Some of the key shifts in the markets:

At 1:47 p.m. Tokyo time, S&P 500 futures showed minimal movement. On Friday, the S&P 500 experienced a 1.2% increase.

The Nasdaq 100 futures increased by 0.1%. The Nasdaq 100 experienced a 1.6% growth.

The Tokyo Stock Price Index (TOPIX) in Japan experienced a 1.4% increase.

The Hang Seng Index in Hong Kong experienced a 1.7% increase.

The Shanghai Composite Index in China experienced a 1.3% increase.

The Australian S&P/ASX 200 Index experienced a 0.6% increase.

The Bloomberg Dollar Spot Index remained relatively stable.

There was minimal movement in the value of the euro, remaining at a rate of $1.0916.

There was minimal fluctuation in the value of the Japanese yen, with an exchange rate of 144.45 yen per dollar.