Asian Stocks Climb on Bullish Wall Street Cue: Markets Wrap

(Bloomberg) — Asian stocks rose, following a buoyant session on Wall Street amid bets the Federal Reserve will soon signal it’s ready to start cutting interest rates.

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Shares advanced in Japan, South Korea and Australia. The MSCI Asia-Pacific index headed for a third day of gains while Hong Kong futures also pointed to a rise. The advance was fueled by a bullish mood in the US, where the S&P 500 climbed for an eighth straight day — the longest winning streak this year.

In Asia, traders are awaiting minutes of the Reserve Bank of Australia’s August policy meeting. Over in China, loan prime rates were kept unchanged. Treasury 10-year yields edged lower while a gauge of Asian currencies hovered near a seven-month high as the dollar continued to weaken.

“What we’ve seen happen is a swathe of recent data, which has eased fears about slowing US growth without stoking fears of reaccelerating inflation,” said Kyle Rodda, a senior market analyst at Capital.Com Inc. That’s benefiting Asia ex-Japan equities, “with a weaker dollar supporting financial conditions and risk appetite,” he added.

A bumpy stretch for investors in the dog days of July and August hasn’t tempered their zest for equities, with allocations still robust despite a bout of recent volatility and heightened uncertainty around the economy.

Stock volume has been trending lower since the trading surge during the early-August selloff as traders are reluctant to place big bets ahead of the Fed’s Jackson Hole economic symposium this week. About 10 billion shares changed hands on exchanges Monday, 14% below the one-month average. S&P 500 futures were little changed early Tuesday.

Meanwhile, with the Fed approaching a crucial pivot point, financial markets will be looking for confirmation from Jerome Powell Friday that the US central bank will lower rates in September. But more drama surrounds what happens after that and the pace of additional cuts over the next several months as the Fed confronts the dual risks to both inflation and employment.

US policymakers are unlikely to “out-dove” the market, but as long as growth is “OK,” equities can withstand a less-dovish central bank, according to Ohsung Kwon at Bank of America Corp.

“Stocks just need a nod that growth is going to be supported,” Kwon said. “While our view is that risk is to the upside, we do not believe that Jackson Hole will spur the large equity moves that it has in the past when the Fed used it as forum to telegraph upcoming policy decisions.”

Equity positioning is back up to moderately overweight, a week after sliding to underweight, according to Deutsche Bank AG strategists including Parag Thatte and Binky Chadha, who said exposure remains well below the mid-July highs at the top of the historical band.

In commodities, oil slipped as the US said Israel had accepted a cease-fire proposal to halt the war in Gaza, potentially easing supply risks just as concerns about the outlook for demand mount. Gold was steady near a record high.

Key events this week:

Eurozone CPI, Tuesday
US Fed minutes, BLS preliminary annual payrolls revision, Wednesday
Eurozone HCOB PMI, consumer confidence, Thursday
ECB publishes account of July rate decision, Thursday
US initial jobless claims, existing home sales, S&P Global PMI, Thursday
Japan CPI, Friday
Bank of Japan Governor Kazuo Ueda to attend special session at Japan’s parliament to discuss July 31 rate hike, Friday
US new home sales, Friday
Fed Chair Jerome Powell speaks at Jackson Hole symposium in Wyoming, Friday