Asian stocks rose for a second session, tracking their US counterparts despite comments from Federal Reserve officials that they want more evidence of easing inflation before cutting interest rates.
Benchmark stocks in Japan, South Korea and Taiwan rose, while mainland China and Australia fell. U.S. futures were flat in Asian trading after Nvidia shares rebounded to lead gains in the so-called “Grand Seven” technology giants yesterday. Treasuries were little changed after a $69 billion sale of two-year U.S. government bonds met expectations and were well-subscribed, setting the stage for three auctions this week.
Consumer confidence declines
U.S. consumer confidence fell amid softer outlooks for business conditions, the labor market and incomes. Federal Reserve Governor Michelle Bowman said she sees a number of upside risks to the inflation outlook. Her colleague Lisa Cook said it would be appropriate to cut interest rates at some point, adding that she expects inflation to gradually improve this year. The dollar rose today.
The Japanese yen remained below the important level of 160 against the dollar.
“There is limited risk of events in Asia today,” said Kyle Rodda, market analyst at Capital.com. “However, the yen remains within striking distance of 160, the levels at which Japanese authorities intervened in the market.”
Interest rates in Japan
In Japan, the central bank is expected to raise interest rates in July and unveil a roadmap for its path toward quantitative tightening, according to a third of economists surveyed by Bloomberg.
“Determining the details of tapering bond purchases may not be a deterrent to raising interest rates in July,” Ayako Fujita, chief Japan economist at JPMorgan Securities, wrote in response to the poll. “The cost of delaying the adjustment of excessive monetary easing is rising as the risks of higher inflation emerge.”
Meanwhile, China’s export outlook is expected to improve, supporting growth in the world’s second-largest economy even as consumer spending slows, according to a separate study. The yuan is trading near its lowest level against the dollar since November.
Nvidia is back
In U.S. trading yesterday, Nvidia shares rose nearly 7% after a $430 billion loss. In late trading, FedEx Corp. shares — a barometer of economic growth — jumped about 15% on bullish expectations. In other corporate news, Rivian Automotive Inc. rose, as Volkswagen AG will invest $5 billion in a joint venture with the electric-vehicle maker.
Investors are likely to continue piling into U.S. stocks in a sign that the Federal Reserve may be backtracking on its rate cuts, according to Societe Generale, which expects the easing cycle to begin early next year.
“We don’t think the current bull market will derail until we enter a recession or the Fed shifts its policy from potential cuts to actual hikes,” said Chris Zaccarelli of Independent Advisor Alliance. “We expect volatility through the end of the year, but don’t expect the bull market to end without a change in the economy or the Fed’s stance.”
The recent sell-off in Nvidia stock does not reflect a deterioration in the outlook for the technology sector or the broader market, especially since other demand signals are positive, according to UBS.
“The Nvidia correction should not be misinterpreted as a warning sign about the structural investment case for AI or the broader equity outlook,” wrote Solita Marsili, chief investment officer for the Americas at UBS Global Wealth Management.
