Global Markets Rally as Japanese Stock Market Soars After BOJ Rate Hike Announcement

Global Markets Rally as Japanese Stock Market Soars After BOJ Rate Hike Announcement

(Bloomberg) — Asian stocks rose, led by Japanese stocks in a week that includes policy decisions from the Bank of Japan and the Federal Reserve that will likely determine the near-term direction of global markets.

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The MSCI Asia-Pacific Index rose in Asian trading, driven by a rally in Japan amid a slightly weaker yen. The Nikkei 225 index, with a strong technological component, experienced the biggest increase in a month. Mainland Chinese stocks also rose after the release of surprisingly strong economic data. U.S. stock futures climbed after the S&P 500 fell 0.7% on Friday.

Speculation is rife that the BoJ will raise its key interest rate on Tuesday after Japan’s largest labor group announced the strongest wage deals in more than three decades. The yen fell slightly against the dollar in Asian trading.

“Japanese stocks are rising on yen weakness and expectations that the currency will not strengthen even with central bank rate hikes,” said Charu Chanana, a strategist at Saxo Capital Markets based in Singapore. “It looks like the BOJ is fully accounted for and more focus on Nvidia and the Fed this week.”

While swap traders have forecast a rate hike of about 28 basis points this year, they see the likelihood of a March rate hike at about 54%, according to data compiled by Bloomberg. Goldman Sachs predicts that the BoJ will raise rates following wage increases and reports predicting a short-term rate of between 0 and 0.1%.

“These developments imply that the BoJ probably no longer needs additional data for the policy change, nor wait to justify the policy change with the quarterly economic outlook report in April,” wrote Tomohiro Ota, an economist at Goldman Sachs Group Inc. in a note.

Read more: Japan’s $4 trillion to stay overseas after BOJ hike: MLIV Pulse

In China, stock gains were led by Contemporary Amperex Technology Co. Ltd. which saw its stock jump more than 5% after reporting full-year net profit that beat estimates. Elsewhere, Chinese industrial production and investment grew more strongly than expected at the start of the year. Beijing has set an ambitious annual economic growth target of around 5%, the same as in 2023, but which could be more difficult to achieve given that the real estate sector remains a major drag.

However, this data is unlikely to push the yuan out of its recent narrow range, torn between the Chinese central bank and the next Fed policy meeting, according to the Commonwealth Bank of Australia.

“A potentially hawkish FOMC meeting could put upward pressure on the dollar-foreign yuan” this week, CBA strategists led by Joseph Capurso wrote in a note to clients. But this “will likely be capped by the People’s Bank of China’s continued support of the national yuan at the daily rate.”

The Fed’s policy meeting on Wednesday could dictate the direction of global stocks for the next quarter. Before the blackout period, Chairman Jerome Powell indicated the central bank was close to having the confidence to cut rates, while others debated how big or small those cuts would be.

Bond traders, meanwhile, seem to have painfully surrendered to a higher and longer reality. Yields on the policy-sensitive two-year Treasury note climbed 11 basis points this month to 4.73%, extending last month’s gain. Swaps traders expect rates to fall by about 71 basis points by the end of the year, compared with 134 basis points at the start of the year, according to data compiled by Bloomberg.

“The Fed may be less confident in inflation than before, but it still has confidence in the trend toward disinflation” and could maintain its median forecast of three cuts this year, Bank of America economists wrote, including Michael Gapen, in a note addressed to their clients. “This may be fanciful thinking on our part, but there are several reports on inflation and we have plenty of time between now and June to change course if necessary.”

Read more: Traders look to consumer stocks for clues about where the Fed is heading

Elsewhere this week, the Reserve Bank of Australia is expected to extend its pause on rates while Bank Indonesia and the Bank of England will also make policy decisions. Eurozone inflation data is due as well as Reddit Inc.’s IPO.

In the commodities sector, oil stabilized on Monday after its strongest weekly gain in a month, as Ukrainian attacks on Russian refineries increased geopolitical risks. Gold fell slightly while iron ore fell below $100 a tonne in Singapore to its lowest level since last May.

Key events this week:

  • Eurozone CPI, Monday

  • Australia rate decision Tuesday

  • Japan rate decision Tuesday

  • Inflation in Canada, Tuesday

  • Prime rates for Chinese loans, Wednesday

  • Indonesia rate decision on Wednesday

  • UK CPI, Wednesday

  • Decision on US rates, Wednesday

  • Brazil rate decision Wednesday

  • ECB President Christine Lagarde speaks on Wednesday

  • New Zealand GDP, Thursday

  • Taiwan rate decision on Thursday

  • Decision on rates in Switzerland, Thursday

  • Norway rate decision on Thursday

  • UK rate decision on Thursday

  • Mexico rate decision Thursday

  • European Union summit in Brussels, Thursday

  • Japan CPI, Friday

Some of the main market movements:

Actions

  • S&P 500 futures rose 0.1% as of 11:09 a.m. Tokyo time

  • Nikkei 225 (OSE) futures rose 2.4%

  • The Japanese Topix rose 1.6%

  • Australia’s S&P/ASX 200 index little changed

  • Hong Kong’s Hang Seng fell 0.2%

  • The Shanghai Composite rose 0.2%

  • Euro Stoxx 50 futures little changed

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro remained unchanged at $1.0889

  • The Japanese yen was little changed at 149.12 per dollar.

  • The offshore yuan was little changed at 7.2046 per dollar.

  • The Australian dollar rose 0.1% to $0.6567.

Cryptocurrencies

  • Bitcoin fell 0.9% to $67,624.34

  • Ether fell 0.8% to $3,602.53

Obligations

  • The yield on the 10-year Treasury note fell one basis point to 4.29%

  • The Japanese 10-year yield fell two basis points to 0.765%

  • The Australian 10-year yield was little changed at 4.13%

Raw materials

  • West Texas Intermediate crude rose 0.4% to $81.35 a barrel

  • Spot gold fell 0.2% to $2,152.12 an ounce

This story was produced with the help of Bloomberg Automation.

–With assistance from Michael G. Wilson.

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