Global Market Asia shares rise on US rate hikes & China reopening

Asian stocks rose on Monday as expectations for less aggressive US rate hikes and the opening of China's borders boosted the global economy's outlook.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.5% to a five-month high, led by South Korean stocks, which rose 2.1%.

Chinese blue chips rose 0.4%, while Hong Kong stocks rose 1.4%. The Chinese yuan has also strengthened to its highest level since mid-August.

The Nikkei in Japan was closed for a holiday, but futures were trading at 26,230, compared to a cash close of 25,973 on Friday.

The S&P 500 futures rose 0.2%, while the Nasdaq futures rose 0.3%. The EUROSTOXX 50 futures rose 0.5%, while the FTSE futures rose 0.4%. Earnings season begins this week with the major US banks, with Wall Street anticipating no year-on-year growth in overall earnings.

"Excluding Energy, S&P 500 EPS (earnings per share) is expected to fall 5%, driven by 134 bp margin compression," Goldman Sachs analysts wrote. "As the reporting season begins, earnings revision sentiment is negative in comparison to the past.

"We anticipate further downward revisions to consensus 2023 earnings per share forecasts," they added. "The reopening of China is one upside risk to 2023 EPS, but margin pressures, taxes, and the recession pose greater downside risks."

A sign of the strain came from reports Goldman would start cutting thousands of jobs across the firm from Wednesday, as it prepares for a tough economic environment.
In Asia, Beijing has now opened borders that had been all but shut since the start of the Covid-19 pandemic, allowing a surge in traffic across the nation.

Bank of America analyst Winnie Wu expects China's economy, the second-largest economy in the world, to benefit from a cyclical upturn in 2023 and anticipates market upside from both multiple expansion and 10% EPS growth.

Sentiment on Wall Street got a boost last week from a benign blend of solid US payroll gains and slower wage growth, combined with a sharp fall in service-sector activity. The market scaled back bets on rate hikes for the Federal Reserve.

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

That will make investors ultra sensitive to anything Fed chair Jerome Powell might say at a central bank conference in Stockholm on Tuesday.

It also heightens the importance of US consumer price index (CPI) data on Thursday, which is forecast to show annual inflation slowing to a 15-month low of 6.5% and the core rate dipping to 5.7%.

"We at NatWest have lower than consensus CPI forecasts, and if right that will likely solidify the market pricing of 25bps vs 50bps," said NatWest Markets analyst John Briggs.

"In context, it should still be seen as a Fed that is still likely to hike a few more times and then hold rates high until inflation's decline is guaranteed - to us that means a 5-5.25% funds rate."

Friday's mixed data had already seen U.S. 10-year yields drop a steep 15 basis points to 3.57%, while dragging the US dollar down across the board.

Early Monday, the euro was holding firm at $1.0660, having bounced from a low of $1.0482 on Friday. The dollar eased to 131.82 yen, away from last week's top of 134.78, while its index was flat at 103.740.

The Brazilian real had yet to trade after hundreds of supporters of far-right former President Jair Bolsonaro were arrested after invading the country's Congress, presidential palace and Supreme Court.

The drop in the dollar and yields was a boon for gold, lifting it to a seven-month peak around $1,870 an ounce.

Oil prices were steadier, after sliding around 8% last week amid demand concerns.

Brent gained 65 cents to $79.22 a barrel, while U.S. crude rose 55 cents to $74.32 per barrel.