Asian Stocks to Get Boost From Bullish Wall Street: Markets Wrap

August 19, 2024

4 minutes read

(Bloomberg) — Asian stocks are set to gain Tuesday, led by Japan’s benchmark, following a buoyant session on Wall Street where the S&P 500 advanced for an eighth straight day — the longest winning streak this year.

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Tokyo equity futures climbed more than 1.5%, with smaller increases in Hong Kong and Sydney. Gains will be fueled by a bullish mood in the US, where a rally that’s already topped $3 trillion from this month’s lows rolled on amid bets the Federal Reserve will signal it’s ready to start cutting interest rates.

While tech led gains on Monday, an equal-weighted version of the US equity benchmark — one that gives Target Corp. as much clout as Microsoft Corp. — hit an all-time high amid hopes the rally will broaden beyond the megacap space. The Russell 2000 of smaller firms added 1.2%.

A bumpy stretch for investors in the dog days of July and August hasn’t tempered their zest for equities, with allocations still robust despite a bout of recent volatility and heightened uncertainty around the economy.

“Investors ‘climbed a wall of worry’ as the stock-market relief rally gained momentum,” said Craig Johnson at Piper Sandler. “Equities will likely consolidate ahead of Fed commentary at Jackson Hole this week.”

Stock volume has been trending lower since the trading surge during the early-August selloff as traders are reluctant to place big bets ahead of the Fed’s Jackson Hole economic symposium this week. About 10 billion shares changed hands on exchanges Monday, 14% below the one-month average. S&P 500 futures were little changed early Tuesday.

Treasury 10-year yields fell one basis point to 3.87% on Monday. The dollar hit the lowest since March. Oil sank about 3%. Secretary of State Antony Blinken said Israeli Prime Minister Benjamin Netanyahu has accepted a cease-fire proposal for Gaza and “the next important step is for Hamas to say yes.”

In Asia, focus will be on whether the yen will keep surging against the greenback after outperforming most of its peers in the Group of 10 Monday. The rally came before Bank of Japan Governor Kazuo Ueda appears in parliament on Friday where he’s expected to give hints on the central bank’s rate-hike path.

Meanwhile, with the Fed approaching a crucial pivot point, financial markets will be looking for confirmation from Jerome Powell Friday that the Fed will lower rates in September. But more drama surrounds what happens after that and the pace of additional cuts over the next several months as the Fed confronts the dual risks to both inflation and employment.

The Fed is unlikely to “out-dove” the market, but as long as growth is “OK,” equities can withstand a less-dovish central bank, according to Ohsung Kwon at Bank of America Corp.

“Stocks just need a nod that growth is going to be supported,” Kwon said. “While our view is that risk is to the upside, we do not believe that Jackson Hole will spur the large equity moves that it has in the past when the Fed used it as forum to telegraph upcoming policy decisions.”

To Neil Dutta at Renaissance Macro Research, the Fed is cutting in September, the only question is by how much.

“I don’t think Powell is going to greenlight a big move, but he won’t torpedo the idea entirely either,” Dutta said. “Powell is likely to acknowledge that the balance of risks has changed, dramatically since the June Summary of Economic Projections. Removing optionality in such a situation is not prudent.”

“So, in this regard, I think the fabled ‘Powell Put’ makes a comeback this week,” Dutta said.

Equity positioning is back up to moderately overweight, a week after sliding to underweight, according to Deutsche Bank AG strategists including Parag Thatte and Binky Chadha, who said exposure remains well below the mid-July highs at the top of the historical band.

Recent economic data and earnings readouts have reinvigorated confidence among JPMorgan Chase & Co. traders that US stocks can rally into the end of the year.

“While upside appears to be more muted than when we adopted this stance earlier this year, there remains material upside,” the team led by Andrew Tyler wrote.

Corporate Highlights:

Advanced Micro Devices Inc. agreed to buy server maker ZT Systems in a cash and stock transaction valued at $4.9 billion, adding data center technology that will bolster its efforts to challenge Nvidia Corp.
Estée Lauder Cos. is forecasting annual revenue growth below analysts’ expectations, a sign that the cosmetics company’s long-awaited recovery has hit another roadblock.
Sonder Holdings Inc. soared after the alternative-lodging company reached a series of deals to raise capital and integrate its brand into Marriott International Inc.’s system.
Kroger Co. is seeking to block the Federal Trade Commission’s in-house case against its proposed purchase of rival grocer Albertsons Cos., claiming the proceeding is unconstitutional.
General Motors Co. is cutting more than 1,000 software engineers as the automaker moves to lean up its software and services organization, said a person familiar with the matter.
Circle K operator Alimentation Couche-Tard Inc. made a proposal to take over much larger rival and 7-Eleven owner Seven & i Holdings Co., in what would be the biggest foreign takeover of a Japanese company. A merger would create the world’s top operator of roughly 100,000 convenience stores.

Key events this week:

China loan prime rates, Tuesday
Eurozone CPI, Tuesday
US Fed minutes, BLS preliminary annual payrolls revision, Wednesday
Eurozone HCOB PMI, consumer confidence, Thursday
ECB publishes account of July rate decision, Thursday
US initial jobless claims, existing home sales, S&P Global PMI, Thursday
Japan CPI, Friday
Bank of Japan Governor Kazuo Ueda to attend special session at Japan’s parliament to discuss July 31 rate hike, Friday
US new home sales, Friday
Fed Chair Jerome Powell speaks at Jackson Hole symposium in Wyoming, Friday