Asian stocks were poised to start the new month higher, following the bullish mood on Wall Street that saw the S&P 500 finish July with its longest streak of monthly gains in almost two years.
Japanese, Hong Kong and Australian futures pointed to gains in early trading Tuesday as concerns dissipated that equity markets could become overheated and company earnings may decline. Recent US data has pointed to inflation becoming tamed, boosting optimism the world’s biggest economy will have a soft landing as the Federal Reserve nears the end of its monetary-tightening cycle.
The S&P 500 edged higher to around 4,590 Monday, closing at a 16-month high. The megacap space saw subdued action, with Apple Inc. and Amazon.com Inc. due to report earnings in the coming days. The Nasdaq 100 notched its longest streak of monthly gains since August 2020. Treasury 10-year yields traded near 3.95% while the dollar posted a small gain.
The buoyant mood on Wall Street has seen a retreat among bearish institutional investors, economists and strategists as market returns and economic data continue to challenge expectations, said Mark Hackett at Nationwide.
Citigroup Inc.’s Scott Chronert has joined the list of strategists who have revisited their gloomy outlooks in recent weeks, raising his forecast for the S&P 500. Morgan Stanley’s Michael Wilson, who has been among the market’s leading pessimists throughout 2023, changed his tone and now sees the rally running further.
“The challenges companies have endured – stubborn inflation, weak markets, and sluggishness internationally – are no longer headwinds,” Hackett noted. “Now, we’re not only seeing tailwinds heading into 2024, but we’re getting less disruptive reactions in the stock market following earnings reports.”
In Asia, focus will turn to China, where stocks ended July on an optimistic note. This comes after Beijing’s top economic planning agency released a wide-ranging policy document containing some recently announced consumption-related initiatives, while a separate report said big cities such as the capital and Shenzhen may ease curbs on the property sector.
Meanwhile, the yen dropped after the Bank of Japan announced an unscheduled bond-purchase operation to tamp down rates after adjusting policy on Friday to allow benchmark yields to climb as high as 1%.
In Australia, financial markets are betting the Reserve Bank will keep its cash rate unchanged on Tuesday, while economists see a 25 basis-point hike to 4.35%.
In corporate news, Exxon Mobil Corp. climbed as Bloomberg News reported it’s in talks with Tesla Inc., Ford Motor Co. and other automakers about supplying them with lithium. SoFi Technologies Inc. surged 20% as the online bank raised its revenue guidance. Yellow Corp., which hauls about 15% of major companies’ so-called less-than-truckload shipments, soared after ceasing operations and telling union leaders that it plans to file for bankruptcy.
Fed Survey
Traders took a Federal Reserve survey of lending officers in stride. As hinted by Chair Jerome Powell, the central bank said financial institutions reported tighter standards and continued weak demand for loans in the second quarter, extending a trend that began before recent stresses in the banking sector emerged.
To Matt Maley at Miller Tabak + Co., investors need to be careful about extrapolating what we’ve seen this year in stocks, and it’s essential to have a backup plan for when the “fear of missing out” fades or “some compelling cracks” start to form. He’s among those betting broad equity averages will see limited upside over the next couple of months.
“Is merely ‘avoiding a recession’ really enough to push the stock market a lot higher from its expensive level? said Maley. “Investors need to be careful about trying to squeeze every last penny out of this rally in the stock market over the coming days and weeks given that many of the best stocks are quite expensive.”
The stock market has been seasonally more muted in August, but if history is any guide, the S&P 500 could see more gains after a five-month winning run. In the prior 37 such streaks since 1928, the gauge extended gains into a sixth month almost 80% of the time, according to Bespoke Investment Group.
Meantime, Fed Bank of Chicago President Austan Goolsbee said data showing slower inflation is “fabulous news,” but he hasn’t yet decided on whether to support pausing rate hikes at the next policy meeting. Over the weekend, his Minneapolis counterpart Neel Kashkari said the inflation outlook is “quite positive,” though the central bank’s aggressive tightening will likely result in some job losses and slower growth.
Key events this week:
- Reserve Bank of Australia policy decision, Tuesday
- Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Tuesday
- US construction spending, ISM Manufacturing, job openings, light vehicle sales, Tuesday
- China Caixin Services PMI, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Thursday
- Bank of England rate decision, Thursday
- US initial jobless claims, productivity, factory orders, ISM Services, Thursday
- Eurozone retail sales, Friday
- US unemployment rate, non-farm payrolls, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 7:12 a.m. Tokyo time. The S&P 500 rose 0.2% Monday
- Nasdaq 100 futures rose 0.1%. The Nasdaq 100 was little changed
- Hang Seng futures rose 0.7%
- S&P/ASX 200 futures rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.1000
- The Japanese yen was little changed at 142.26 per dollar
- The offshore yuan was little changed at 7.1494 per dollar
- The Australian dollar was little changed at $0.6719
Cryptocurrencies
- Bitcoin was little changed at $29,217.93
- Ether was little changed at $1,855
Bonds
- The yield on 10-year Treasuries was little changed at 3.96%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
