- Nikkei at three-month high, S&P 500 futures firm
- China stocks up after Beijing sets 5% growth target
- The markets are ready for Powell, meetings of the BOJ, BOC and RBA
- February payrolls a big test for US interest rate expectations
SYDNEY, March 6 (Reuters) – Asian shares rose on Monday as bond markets held their breath ahead of an update on the U.S. interest rate outlook from the world’s most powerful central banker and a jobs report that could determine whether the next hike will be a super-sized one.
There was some disappointment that Beijing chose to cut its growth outlook to a target of 5% rather than the 5.5%-plus favored by the market, but the latest series of actual data has been strong enough to keep investors optimistic.
Chinese blue chips (.CSI300) fell 0.5% after rising 1.7% last week. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was still up 0.7%.
Japan’s Nikkei (.N225) rose 1.2% to a three-month high, while South Korean shares (.KS11) rose 1.0% helped by a softer reading on inflation.
EUROSTOXX 50 futures gained 0.5%, while FTSE futures were flat. S&P 500 futures rose 0.2% and Nasdaq futures 0.4%, after rising on Friday as bond yields fell slightly.
See 2 more stories
Yields on 10-year Treasuries were at 3.94%, after last week’s rise to 4.09% proved tempting enough to attract buyers.
Markets have become resigned to more rate hikes from the Federal Reserve, but hope it will stick to quarter-point moves rather than switch back to half-point hikes.
San Francisco Fed President Mary Daly reiterated on Saturday that interest rates should rise, but set a high bar for going to half-point increases.
Futures imply a 72% chance the Fed will hike by 25 basis points at its March 22 meeting.
All of this sets the stage for Fed Chairman Jerome Powell’s testimony to Congress on Tuesday and Wednesday, where he will no doubt be asked whether more hikes are needed.
However, much may depend on what the February wage report reveals on Friday. Forecasts are centered on a more modest increase of 200,000 after January’s barnstorming 517,000 jump, but risks are on the upside.
And that will be followed by the February CPI report on March 14.
KURODA BOOTS OUT
“Powell’s testimony comes before the wage and inflation figures, so he is likely to avoid committing to a policy path,” said Jan Nevruzi, analyst at NatWest Markets.
“The wage is due on the last day Fed officials can publicly discuss monetary policy, but the CPI will be released during the blackout period,” he added. “If we end up in a situation where the jobs and inflation numbers give a conflicting view, the outcome of the Fed meeting could become even more difficult to predict.”
The Fed is hardly alone in warning of further tightening.
In an interview published over the weekend, European Central Bank President Christine Lagarde said it was “very likely” they would raise interest rates by 50 basis points this month and that the bank had more work to do on inflation.
Australia’s central bank is expected to raise interest rates by 25 basis points on Tuesday, while the Bank of Canada is seen to stop raising interest rates at a record pace of 425 basis points in 10 months.
Friday marks the last policy meeting of Bank of Japan Governor Haruhiko Kuroda before Kazuo Ueda takes over the reins in April, and all eyes are on the fate of its yield curve control (YCC).
“No change is expected, but we should not completely rule out the chance of Kuroda going out with a bang via the BoJ announcing another tweak to the 0% YCC tolerance band,” analysts at NAB noted in a note.
The BOJ jolted markets in December when it unexpectedly widened the allowed trading band for 10-year bond yields to between -50 and +50 basis points.
So far, Ueda has sounded dovish on the outlook for policy, which has kept the yen on a softer trend. The dollar was last at 135.61 yen after hitting a three-month high of 137.10 last week.
The euro held at $1.0643, just off a seven-week low of $1.0533, while the dollar index was a fraction lower at 104.430.
Friday’s pullback in bond yields helped gold regain some ground, and it traded at $1,855 a barrel. ounces.
Oil prices fell and investors were perhaps disappointed that China did not set more ambitious growth targets.
Brent fell 62 cents to $85.21 a barrel. barrel, while US crude fell 59 cents to $79.09 a barrel. barrel.
Reporting by Wayne Cole; Editing by Shri Navaratnam
Our standards: Thomson Reuters Trust Principles.