by Wayne Cole
SYDNEY (Reuters) – Asian markets held their breath on Monday as investors waited to see how serious Beijing was about easing policy through widely expected interest rate cuts, having been so disappointed with its stimulus steps.
China is expected to cut its lending standards by between 10 and 15 basis points on Monday, with many analysts anticipating a big cut in the mortgage reference rate to revive credit demand and support the ailing real estate sector.
The central bank said on Sunday that Beijing would coordinate financial support to solve local government debt problems, and there were reports that it was encouraging commercial banks to lend more.
However, investors prefer massive fiscal spending to small interest rate cuts, and there is little sign of that yet. Caution kept MSCI’s broader index of Asia-Pacific stocks outside Japan near steady, after falling 3.9% last week to its lowest levels for this year so far.
Japan’s Nikkei rose 0.2%, but that followed a 3.2% drop last week.
S&P 500 futures were flatter, up 0.1%, while Nasdaq futures were up 0.2%. AI-darling Nvidia’s earnings on Wednesday will be a major valuations test.
Analysts worry that the market has gone on too long, especially in technology, leaving it vulnerable to a deeper downturn.
The latest Bank of America survey of fund managers found that sentiment was the least declining since February 2022, while liquidity levels were at their lowest level in nearly two years, and 3 out of 4 respondents expect little or no downturn in the global economy.
Meanwhile, analysts at Goldman Sachs argue there is still room for investors to add to equity positions.
“Reopening the buyback blackout window will provide a boost to equity demand in the coming weeks, although a wave of expected equity issuances this fall may provide partial compensation,” they wrote in a note.
Equity valuations were pressured in part by a sharp rise in bond yields, with the US 10-year hitting a 10-month high last week at 4.328%.
Early Monday, yields were steady at 4.253% and a break above 4.338% would take them to levels not seen since 2007.
Markets assume that Federal Reserve Chairman Jerome Powell will notice the jump in yields at this week’s Jackson Hole conference, as well as the strong economic data released recently. The Atlanta Fed’s GDP tracker is now running at 5.8% for the quarter.
“It’s an opportunity for Powell to provide an updated assessment of economic conditions, which now look stronger than expected and strengthen the case for additional rate hikes,” said Barclays analyst Marc Giannone.
“Though, we would be surprised if he provided specific guidance, with the key August releases of employment, CPI and retail sales all coming before the September meeting.”
A majority of analysts surveyed think the Fed is done hiking, while futures point to a 31% chance of another hike by December.
The rally in yields helped the greenback post a five-week gain and a nine-month peak for the Japanese yen at 146.56. On Monday, it was trading at 145.32 as the market worried about the risks of Japanese intervention. (American dollar/)
The euro also settled at 157.96 yen, but was pressured by the dollar at $1.0871 after losing 0.7% last week.
The rise of the dollar and yields was pressuring gold at $1,888 an ounce, after it touched a five-month low last week. (joule/)
Oil prices snapped a seven-week winning streak as concerns about Chinese demand offset supply shortages. (or)
Brent fell 11 cents to 84.69 dollars a barrel, while US crude fell 1 cent to 81.25 dollars a barrel.
LNG prices were supported by the risk of a strike at Australian offshore facilities that could affect around 10% of global supply.
(Reporting by Wayne Cole; Editing by Shri Navaratnam)