Posted by Wayne Cole
SYDNEY (Reuters) – Asian stocks rallied on Monday as record highs on Wall Street and the easing of monetary policy in China helped ease some of the recent nervousness over global growth, although many potential pitfalls lie ahead this week.
In the United States, inflation data ahead of Federal Reserve Chairman Jerome Powell’s testimony on Wednesday and Thursday could create fear as markets will be overly sensitive to any premature tightening talk.
The reporting season also begins with JP Morgan, Goldman, Citigroup and Wells Fargo reporting.
China is releasing figures on economic growth, trade, retail sales and industrial production as concerns remain that given the sudden easing of policy last week, they may not be overwhelmed.
“Expectations for China’s outlook have deteriorated over the past month due to some disappointing partial data that was made much worse by the prospect of reaching peak growth from the pandemic recovery,” Westpac analysts said in a note.
“However, annual growth of over 8.0% is expected, and by the second half of 2022 the quarterly growth pulse should stabilize again in the trend.”
For now, investors were happy that last week’s bear market had swung around New York, driving Wall Street up and dampening the bull run in bonds.
Early Monday, MSCI’s broadest index for Asia Pacific stocks outside of Japan rose 0.4% after losing 2.3% last week.
Japan’s Nikkei rebounded 1.9%, moving away from a two-month low hit on Friday, while South Korea added 0.6%. Nasdaq futures were up 0.1% and S&P 500 futures were a fraction firmer.
10-year US note yields remained steady at 1.365% after hitting just 1.25% on Friday after eight straight gains. [US/]
“The July rally in US rates was remarkable,” said NatWest Markets analysts. “No driver explains the step perfectly … but fears about global growth and the Covid Delta variant had raised new doubts about inflation.”
This fit of risk aversion had also aided the safe haven of the United States. Dollars until profit-taking on Friday. It last stood at 92.147 for a basket of currencies after hitting a three-month high of 92.844 last week.
The safe haven yen also lost some ground at 110.18 per dollar, while the euro strengthened from last week’s low of $ 1.1780 to $ 1.1871.
European Central Bank President Christine Lagarde surprised the markets on Monday by saying that the bank will change its monetary policy guidelines at its next meeting and show that it is serious about reviving inflation.
The ECB’s new strategy allows it to tolerate inflation above its 2% target when interest rates are close to bottom.
Overall risk-off sentiment helped gold up last week, trading at $ 1,806 an ounce from its low of $ 1,749 in June.
Oil prices stabilized on Monday after ending a volatile week with a rebound as US inventories tightened. Traders are still unsure of the prospects for supplies after the failure of the OPEC talks on restrictions. [O/R]
Brent recently rose 6 cents to $ 75.61 a barrel, while US crude was unchanged at $ 74.56.
(Reporting by Wayne Cole; Editing by Jane Wardell)