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May 20, 2024

Asian Markets Surge to Two-Year Highs Amid China’s Property Boost and Global Rate Cut Hopes

Asian shares reached new heights, rallying to a two-year peak on Monday, propelled by China’s robust initiatives to stabilize its property market and growing expectations of global interest rate cuts in the coming weeks. This optimistic start to the week also saw the dollar stabilize after its recent decline.

In the commodities market, Brent crude futures climbed to a one-week high of $84.14 per barrel, partly influenced by the tragic helicopter crash involving Iran’s president in the Middle East. Gold prices remained near their record high at $2,423 an ounce, reflecting continued investor interest in safe-haven assets.

Japan’s Nikkei index rose by 0.9% in early trading. Meanwhile, Hang Seng futures indicated potential gains, and MSCI’s broadest index of Asia-Pacific shares outside Japan increased by 0.25%, reaching a two-year high with early gains seen in both Australia and South Korea.

Following a week of record highs for global stocks driven by softer US inflation data, the focus now shifts to key policy speeches, central bank meeting minutes, a decision from the Reserve Bank of New Zealand, and results from tech giant Nvidia. The data calendar will see a brief pause this week, providing a moment of reflection for investors.

Bob Savage, head of markets strategy and insights at BNY Mellon, emphasized in a note to clients that sustained market gains will require more than initial positive signs; it will necessitate confidence from central bankers and additional economic evidence. He highlighted the importance of upcoming Federal Reserve communications and meeting minutes in shaping market expectations around future policy moves, with a current bias towards easing rather than tightening.

Late last week, in response to comments from various policymakers, global bonds reversed some of their gains from earlier in the week, which had been driven by encouraging US Consumer Price Index (CPI) data. US Federal Reserve Governor Michelle Bowman reiterated her stance, indicating she is prepared to raise rates if inflation progress stalls or reverses.

Similarly, European Central Bank (ECB) board member Isabel Schnabel suggested that a rate cut in June could be appropriate, though she tempered market expectations for subsequent cuts.

US Treasury yields reflected this cautious optimism, with two-year yields ending last week four basis points lower at 4.825% and holding steady in Asian trading. Ten-year yields dropped 8.4 basis points to 4.42% last week.

China’s significant announcement on Friday, detailing measures to stabilize its property sector, included the central bank injecting 1 trillion yuan ($138 billion) in extra funding and relaxing mortgage rules. Additionally, local governments are poised to purchase some apartments, aiming to shore up the real estate market. This news boosted the Hang Seng index to a nine-month high and drove growth-sensitive copper prices to a 26-month peak. Nickel prices also surged, reaching their highest level in nine months due to unrest in nickel-exporting New Caledonia.

In the currency markets, the dollar saw its largest weekly drop against the euro in two-and-a-half months last week but remained steady in early Asian trading on Monday. The euro held at $1.0873, while the yen was slightly weaker at 155.82 per dollar. The Australian dollar, having risen by 1.4% last week, maintained its position at $0.6698, and the New Zealand dollar hovered at $0.6135. The Reserve Bank of New Zealand is expected to keep its main cash rate at 5.5% when it sets interest rates on Wednesday.

Analysts at ANZ Bank cautioned that the RBNZ might not be as optimistic as the market regarding imminent rate cuts, suggesting short-term rates could rise slightly if the central bank maintains a cautious stance.

Looking ahead, meeting minutes from the central banks of Australia and the US, along with flash global Purchasing Managers’ Indexes (PMIs), will provide further insights into economic conditions and policy directions.

In the US, S&P 500 futures rose by 0.2% in early trade. Meanwhile, Bitcoin saw a minor dip of about 1%, trading at $65,863, reflecting the ongoing volatility in the cryptocurrency market.

Jhumpa Lahiri

Jhumpa Lahiri

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