Asian stocks rose on Tuesday after a sell-off that saw a decline in riskier assets globally, led by cryptocurrencies. Attention was focused on Japanese government bonds ahead of an auction of 10-year notes.
Asian stocks rose 0.5%, with South Korea's tech-heavy market outperforming.
US stock futures edged higher in Asian trading after the S&P 500 fell 0.5% and the Nasdaq 100 dropped 0.4% on Monday. Bitcoin fluctuated in early Asian trading after a loss of more than 5% on Monday.
Japan's final 10-year bond auction of the year, scheduled for later today, has gained increasing importance for traders after yields rose amid growing speculation about an interest rate hike. The yen weakened against the dollar after posting its biggest weekly gain in a week on Monday, when Bank of Japan Governor Kazuo Ueda gave his clearest hint yet that a rate increase is likely soon.
Christina Hooper, chief market strategist at Man Group, wrote in a LinkedIn post: “Japanese bonds should be watched, after their yields rose sharply this year due to expectations of a larger fiscal deficit and another interest rate hike from the Bank of Japan.”
She added: This is important because higher yields on Japanese bonds can push up yields on other long-term sovereign bonds, increasing borrowing costs for some governments.
All eyes are on interest rate decisions
Global markets got off to a choppy start in December on Monday, after fresh sell-offs in cryptocurrencies and hawkish comments from the Bank of Japan governor reinforced risk aversion.
The focus in the coming days will remain on central bank decisions, with the Federal Reserve meeting on December 9 and 10, while the Bank of Japan makes its interest rate decision on December 19.
U.S. Treasury bonds stabilized on Tuesday after falling along the curve on Monday, when the yield on the 10-year note jumped seven basis points to around 4.1%. The dollar index remained steady, while the yield on the 10-year Australian bond rose six basis points.
Elsewhere, silver retreated from a record high, with a technical indicator suggesting the metal had entered overbought territory after a six-session rally through Monday. Gold also declined, while oil edged higher.
Tariq Horshani, head of principal brokerage at Maybank Securities in Singapore, said: “We have seen some stabilization, but it looks more like a rebound driven by changes in investment positions than a shift in overall sentiment.” He added: “Monday’s moves prompted some hesitant investors to exit, but the market remains cautious.”
The market is awaiting data to gauge the strength of the US economy.
Data released on Monday showed that U.S. factory activity contracted in November at the fastest pace in four months due to weak orders.
Federal Reserve officials will receive a delayed reading of their preferred inflation gauge before next week's interest rate decision. Friday's report is expected to show that inflationary pressures are stable but still present. However, the labor market will be a major focus of discussion during the rate-setting meeting.
Although key data such as the jobs report will be released after the interest rate decision in December, Fouad Razakzadeh of Forex.com believes that this significantly reduces this week's ability to produce substantial surprises in interest rate cut expectations.
Besides the inflation data due on Friday, key economic data this week includes the ADP private sector employment figures for November and a preliminary reading of consumer confidence in December.
“With the Federal Reserve poised for another possible interest rate cut, and major governments adopting more growth-supportive fiscal stances than anticipated, we believe the global macroeconomic environment will remain favorable for investors’ risk tolerance,” said Homin Lee, senior macro strategist at Lombard Odier in Singapore.
