Stocks Jump on China Vow; Bonds Steady Before Fed: Markets Wrap

(Bloomberg) — Stocks in Asia jumped Wednesday amid a rally in technology shares and a pledge from China to keep capital markets stable, while Treasuries held steady as investors awaited the Federal Reserve decision.

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An Asia-Pacific share gauge added some 3% and a Chinese tech index rebounded from brutal selloff, soaring as much as 18%. S&P 500, Nasdaq 100 and European futures climbed after a Wall Street advance Tuesday.

Aside from vowing market stability, a meeting of top financial leaders in China said the nation will ensure proactive monetary policy and seek to manage the risks stemming from the property sector.

Equities in China and Hong Kong had been under pressure — shedding $1.5 trillion combined over the first two days this week — on regulatory fears and speculation that Beijing’s ties with Russia raise the risk of a U.S. backlash.

Investors are also on alert for wider volatility stirred by Russia’s war in Ukraine. West Texas Intermediate crude has shed most of the gains since the invasion and remained below $100 a barrel, weighed down by Covid lockdowns in China that pose a threat to demand.

The U.S. 10-year Treasury yield held at about 2.15% ahead of the Fed decision Wednesday. The offshore yuan strengthened and the dollar dipped.

A quarter-point Fed rate increase, the first since 2018, to fight high inflation is widely anticipated but there’s less certainty beyond that. While markets expect a total of seven such moves this year, policy makers also have to factor in growth risks emanating from the war and the isolation of Russia in retaliation.

“The confluence of events leading in to this meeting puts policy makers in a very unenviable position,” Matt Rowe, executive director at Nomura Securities International Inc., said on Bloomberg Television. “It’s being publicly debated whether if you create a recession to push the number down to 2%, is that actually a policy error?” he added, referring to inflation.

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In the latest developments from the conflict, Ukraine and Russia are due to resume talks Wednesday. A key adviser to Ukrainian President Volodymyr Zelenskiy called the negotiations “difficult” but said there is room for compromise. In Russia, President Vladimir Putin said Ukraine’s leadership was not “serious” about resolving the conflict.

Default Concerns

Russia has begun the process of paying $117 million in interest due Wednesday on dollar bonds. Investors are waiting to see if a default occurs. The coupon payments have a 30-day grace period until any default could potentially be called.

Elsewhere, nickel trading is due to resume Wednesday on the London Metal Exchange, over a week after being suspended amid a historic short squeeze.

U.S. data showed producer-price inflation at 10%, underscoring inflationary pressures. Meanwhile, New York state manufacturing activity weakened considerably in early March. Taken together they point to the Fed’s dilemma.

“We will be closely watching the Fed’s dot plot, which we expect to signal five or six interest-rate hikes this year, more than December’s projections but in line with market expectations,” wrote Lauren Goodwin, portfolio strategist at New York Life Investments. “A dot plot projecting more hiking would likely be a hawkish signal and could result in an earlier yield curve inversion.”

In the cryptocurrency sector, Bitcoin staged a sudden rally, at one point spiking almost 6% before easing back to about $39,000.

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Here are some key events to watch this week:

  • EIA crude oil inventory report, Wednesday

  • FOMC rate decision and Fed Chair Jerome Powell news conference, Wednesday

  • Bank of England rate decision, Thursday

  • ECB President Christine Lagarde, Executive Board member Isabel Schnabel, Governing Council member Ignazio Visco and Chief Economist Philip Lane speak at a conference, Thursday

  • Bank of Japan rate decision, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.5% as of 5:47 a.m. in London. The S&P 500 rose 2.1%

  • Nasdaq 100 futures rose 1%. The Nasdaq 100 rose 3.2%

  • Japan’s Topix index added 1.7%

  • Australia’s S&P/ASX 200 index rose 1.1%

  • South Korea’s Kospi index climbed 1.5%

  • Hong Kong’s Hang Seng index increased 8.6%

  • China’s Shanghai Composite index added 3.1%

  • Euro Stoxx 50 futures increased 1.4%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro was at $1.0975, up 0.2%

  • The Japanese yen was at 118.24 per dollar

  • The offshore yuan was at 6.3602 per dollar, up 0.3%

Bonds

Commodities

  • West Texas Intermediate crude was at $97.14 a barrel, up 0.7%

  • Gold was at $1,918.75 an ounce

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