Asian stocks were relieved by the changing mood, obstacles await

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SYDNEY (Reuters) – Asian shares enjoyed a comfortable rally on Monday as record gains on Wall Street and policy easing in China helped calm some recent tensions over global growth, although there are plenty of potential pitfalls this week.

FILE PHOTO: An investor looks at an electronic board displaying stock information at a brokerage firm in Beijing, August 27, 2015. REUTERS/Jason Lee/File Photo

In the US, inflation data may provide concerns ahead of Federal Reserve Chairman Jerome Powell’s testimony on Wednesday and Thursday, as markets will be highly sensitive to any talk of early tapering.

Earnings season is also kicking off with JPMorgan, Goldman, Citigroup and Wells Fargo among those reports.

China releases figures this week on economic growth, trade, retail sales and industrial production amid fears that they may disappoint them given the sudden easing in policy last week.

“Expectations about China’s future have been soured over the past month as a result of some disappointing partial data that made things much worse from the perspective of shaking off peak growth from the pandemic recovery,” Westpac analysts said in a note.

“However, annual growth is still expected to exceed 8.0%, and during the second half of 2022 the quarterly growth pulse should return to the right direction.”

For now, investors were happy that last week’s downtrend rally swung into New York, sending Wall Street higher and easing the rally in bonds.

On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.7% after losing 2.3% last week.

Japan’s Nikkei rebounded 2.2%, off a two-month low touched on Friday, while South Korea’s index rose 0.9%. Chinese blue chips rose 1.1%.

Nasdaq and S&P 500 futures were a little easier after recovering on Friday. EUROSTOXX 50 futures are flat, while FTSE futures are down 0.2%.

US 10-year bond yields settled at 1.35%, after having been as low as 1.25% on Friday after eight straight sessions of price gains. [US/]

Analysts at NatWest Markets noted that “the rise in US interest rates in July was notable”. “No single driver explains this move perfectly…but concerns about global growth and the Covid Delta variant have raised new doubts about inflation.”

This bout of risk aversion also supported the safe-haven US dollar, until it faced some profit taking on Friday. It was last at 92.190 for a basket of currencies, after touching a three-month high of 92.844 last week.

The Japanese yen also lost some strength to 110.16 per dollar, while the euro stabilized to $1.1869 from last week’s low of $1.1780.

European Central Bank President Christine Lagarde surprised markets on Monday, saying the bank will change its policy guidance at its next meeting and show it is serious about reviving inflation.

The new strategy allows the European Central Bank to tolerate inflation above its 2% target when rates are near rock bottom.

The general risk-off mood helped gold rise last week and it traded at $1,800 an ounce compared to its June low of $1,749.

Oil prices stabilized on Monday after ending a volatile week with a rebound as US inventories tightened. Traders remain uncertain about the outlook for supplies after the collapse of OPEC talks on restrictions.

Brent crude fell in the latest trading by 18 cents to $75.37 a barrel, while US crude fell 16 cents to $74.40.

Editing by Jane Wardle and Jacqueline Wong

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