Markets

GLOBAL MARKETS-Asia recovers on US rate hopes, China reopens

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Asian stock markets: https://tmsnrt.rs/2zpUAr4

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US stock futures rise, Nikkei futures gain

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It is hoped that the US CPI report will give reason for smaller Fed hikes

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Earnings season begins at the big banks on Friday

By Wayne Cole

SYDNEY, Jan 9 (Reuters) – Asian shares rose on Monday as hopes of a less aggressive U.S. interest rate hike and the opening of China’s borders boosted the outlook for the global economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, while South Korean shares rose 1.1%.

Japan’s Nikkei was closed for the holiday, but futures traded at 26,235, compared with Friday’s cash close of 25,973. S&P 500 futures added 0.2% and Nasdaq futures added 0.3%.

Earnings season kicks off this week with major U.S. banks, and the Street fears no year-over-year earnings growth at all.

“Excluding energy, S&P 500 EPS (earnings per share) are expected to fall 5%, driven by 134 bp of margin compression,” Goldman Sachs analysts wrote. “Entering the reporting season, earnings revision sentiment is historically negative.”

“We expect further downward revisions to consensus EPS forecasts for 2023,” they added. “The reopening of China is one upside risk to EPS 2023, but margin pressures, taxes and recession are bigger downside risks.”

Beijing has now opened borders that have been virtually closed since the start of the COVID-19 pandemic, allowing for an increase in traffic across the country.

Bank of America analyst Winnie Wu expects China’s economy, the world’s second-largest economy, to benefit from cyclical growth in 2023 and forecasts the market to grow from multiple expansion and earnings per share growth of 10%.

Sentiment on Wall Street was boosted last week by a benign mix of solid US payroll gains and slower wage growth, combined with a sharp decline in services sector activity. The market cut bets on an interest rate hike by the Federal Reserve.

Fed funds futures now imply about a 25% chance of a half-point hike in February, down from about 50% a month ago.

That will make investors extremely sensitive to anything Fed Chairman Jerome Powell might say at the central bank’s conference in Stockholm on Tuesday.

It also adds to the importance of Thursday’s US consumer price index (CPI) data, which is expected to show annual inflation slowing to a 15-month low of 6.5% and the base rate falling to 5.7%.

“We at NatWest have a lower than consensus CPI forecast, and if correct, this is likely to underpin the market price of 25bps versus 50bps,” NatWest Markets analyst John Briggs said.

“In context, it should still be seen as the Fed likely to hike a few more times and then keep rates high until a fall in inflation is assured — for us that means a 5-5.25% funds rate.”

Friday’s mixed data had already seen US 10-year yields drop a steep 15 basis points to 3.57%, while dragging the US dollar lower.

Early on Monday, the euro was holding at $1.0664, having rebounded from Friday’s low of $1.0482. The dollar weakened to 131.63 yen, far from last week’s peak of 134.78, while its index fell a fraction to 103.800. Brazil’s real has yet to trade after hundreds of supporters of former far-right president Jair Bolsonaro were arrested following an invasion of Congress, the presidential palace and the country’s Supreme Court. The fall in the dollar and yields were a boon for gold, lifting it to a seven-month high of around $1,870 an ounce.

Oil prices were currently steady after falling about 8% last week on demand concerns.

Brent gained 26 cents to $78.83 a barrel, while US crude rose 30 cents to $74.07 a barrel.

(Reporting by Wayne Cole; Editing by Bradley Perrett)

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