Asia shares up as China talks stimulus; Japanese yields a risk

SYDNEY: Asian shares were trying to end the month on a firm note on Monday in a week littered with major economic releases, central bank meetings and earnings updates from mega caps Amazon and Apple, though rising Japanese bond yields posed a risk.

China surveys were mixed with factory activity just pipping forecasts but services disappointing, though both merely reinforced wagers that Beijing would have to act at some point. China’s State Council on Monday did issue measures to restore and expand consumption in the automobile, real estate and services sector, though this was a long way from the massive fiscal spending markets have been counting on.

Blue chips seemed unperturbed and added 0.6%, bringing gains for July to 4.5%.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.5%, having gained 5.2% so far in July to reach a five-month high.

The initial impetus for markets was positive following Friday’s U.S. data showing an easing in wage costs and core inflation, which fuelled hopes the Federal Reserve was done tightening. “The data surprises bolster confidence that global core inflation – ex. China – will fall sharply and set the stage for a developed market central policy pause and emerging market easing even if growth remains firm,” said Bruce Kasman, head of economic research at JPMorgan.

Figures due this week include the U.S. ISM surveys on manufacturing and services, the July payrolls report and European inflation.

The Bank of England is widely expected to raise rates by at least a quarter point, but markets are more divided on whether the Reserve Bank of Australia will hike or stay on hold.

Almost 30% of the S&P 500 report results this week and so far, earnings have been good enough to see the index extend its rally to 10% since the start of June.

S&P 500 futures dipped 0.1% on Monday, but the index was still up 2.9% for July, while Nasdaq futures dipped 0.2%. EUROSTOXX 50 futures and FTSE futures both eased 0.4%.

Apple Inc and Amazon.com both report on Thursday, while other well-known names with results due include Western Digital Corp, Caterpillar Inc, Starbucks Corp, and Advanced Micro Devices.

PARSING THE BOJ

Japan’s Nikkei rose 1.2% to re-take the 33,000 level and nudge closer to its recent three-decade peak.

Investors are still pondering the implications of Friday’s shock decision by the Bank of Japan (BOJ) to lift the lid on bond yields, in a step away from its ultra-easy policies.

Analysts at BofA estimate the BOJ’s bond buying added $1.3 trillion to global liquidity in the past 18 months and provided a low floor for global rates, so any sustained rise in Japanese government bond yields could ripple though other bond markets.

Japanese 10-year yields climbed further to 0.6% on Monday, and toward the new cap of 1.0%. That also put upward pressure on Treasury yields, where the 10-year rose 3 basis points to 3.99%.

While the yen had initially rallied on the BOJ move, it soon reversed course as investors still seemed happy to run carry trades, or yen-funded positions in higher-yielding currencies.

“Friday’s action might best be viewed as an attempt to head off a fresh wave of yen-weakening carry trade activity, by at least ceasing to resist pressure for 10-year yields to rise above 0.5%,” said Ray Attrill, head of FX strategy at National Australia Bank.

“Friday’s actions do, though, fail to provide a catalyst for a secular reversal of yen weakness.”

The yen was again under pressure on Monday as the dollar pushed up to 141.87 yen, a long way from Friday’s brief low of 138.05.

The euro had also recovered from its initial pullback to stand at 156.18 yen, while steadying on the dollar at $1.1010 after some wild swings last week.

In commodities, gold was off a shade at $1,955 an ounce , leaving it 1.8% higher for the month so far.

Oil prices took a breather, having risen for five weeks in a row as production cuts by OPEC+ tightened supply.

Goldman Sachs on Sunday revised up its global oil demand forecast for the year while sticking to its 12-month Brent price projection of $93 per barrel.

Brent was off 59 cents at $84.40 a barrel, while U.S. crude eased 31 cents to $80.27. – Reuters