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Asia stocks rise on prospects of Fed easing hikes

 

Friday, November 25, 2022

The news shaping the markets today

At least four people were killed in the southern city of Kherson following fresh strikes. The news sent WTI crude oil prices higher this morning.


UK’s car production climbed 7.4% year-over-year to 69,524 units in October, returning to growth after a plunge in September. However, the GBP/USD forex pair remained under pressure.


New Zealand’s retail sales grew by 0.4% during the three months to September, following a 2.2% decline in the earlier quarter. Despite a rebound in sales, the NZD/USD pair fell slightly in forex trading this morning.


Argentina’s consumer confidence indicator declined to 35.1 in November, from the previous month’s reading of 36.6, which exerted pressure on the ARS/USD forex pair.


The South African Reserve Bank increased its benchmark repo rate by 75 bps to 7%. However, the ZAR/USD pair declined in forex trading this morning.

 

What’s happening: Asian stocks closed higher on Thursday, tracking the rise on Wall Street the previous day.

What happened: Market sentiment in Asia was driven by prospects of the US Federal Reserve slowing its aggressive rate hike strategy.

News related to stimulus measures by China also provided support to Asian equities on Thursday.

Why it matters: US stocks closed higher on Wednesday, with the Nasdaq 100 gaining more than 100 points, following the release of minutes from the latest Federal Reserve meeting, which suggested policymakers may slow the pace of interest rate hikes ahead.

Trading in the futures market suggested a 76% chance of the Fed raising rates by 50 basis points at its December meeting, after having raised interest rates by 75 basis points at four consecutive meetings to control surging inflation.

China’s government flagged prospects of an upcoming reduction in the central bank’s RRR (reserve requirement ratio), disclosing new stimulus measures to provide support to the economy.

China also reported a record high surge in daily covid-19 cases, which resulted in fresh restrictions in various major cities of the country. The Shanghai Composite index fell 0.25% to close at 3,089.31 on Thursday, despite its regional peers recording gains.

Tokyo’s main index settled at its strongest level in over two months, despite weak manufacturing activity. In Japan, data released on Thursday showed manufacturing activity shrinking at the fastest pace in two years in November. The au Jibun Bank Japan manufacturing PMI fell to 49.4 in November, versus a reading of 50.7 in the previous month. This was also the first contraction in the country’s factory activity since January 2021. Services PMI also fell to 50.0 in the month, from 53.2 in October.

However, the index of leading economic indicators in Japan was revised higher to 97.5 for September, versus a preliminary reading of 97.4

Investors in Japanese stocks looked past the manufacturing data and sent the Nikkei 225 higher by 0.95% to 28,383.09 on Thursday.

South Korea’s KOSPI index climbed around 1% after the Bank of Korea raised rates by a smaller margin at its latest meeting.

Other tech-heavy bourses also benefited from signs of smaller rate hikes. Hong Kong’s Hang Seng index gained 0.78% to settle at 17,660.90, while India’s S&P BSE Sensex rose 1.24% to close at 62,272.68.

What to watch: Investors will keep an eye on major data releases scheduled for next week. Markets will also continue monitoring covid cases in China and comments from Fed officials.

The markets today

The Canadian dollar will be in focus today ahead of data on government budget value

Context: The CAD/USD forex pair traded slightly higher on Thursday with the US dollar coming under pressure.

Details: The US dollar fell towards a three-month low versus a basket of major peers after the release of minutes from the Fed’s latest meeting suggested a slower pace of rate hikes ahead.

Although the Bank of Canada has already slowed its pace of hikes, it is likely to continue raising interest rates. BoC Governor Tiff Macklem said during his latest testimony that inflation remains too high in the country and the central bank’s tightening cycle needed to continue.

Canada’s annual inflation rate came in at 6.9% for October, much higher than the central bank’s target of 2%.

On the economic data front, Canada’s CFIP Business Barometer long-term optimism index fell to 50 in November, from 51.2 in the prior month. Average weekly earnings of non-farm payroll employees in the country rose by 3.5% year-over-year to C$1,175 in September, notching growth for the 16th straight month.

The price of crude oil, one of Canada’s major exports, rose slightly to $77.94 per barrel.

The CAD/USD forex pair gained around 0.1% to reach 1.3338 on Thursday, hovering near its eight-week high of 1.325 recorded earlier this month, amid thinner-than-usual trading with US financial markets remaining closed for Thanksgiving.

The S&P/TSX Composite climbed 0.3% to 20,344.07 on Thursday, extending gains from the previous session.

What are expectations: Traders await data on government budget value from Canada today. Canada’s budget deficit is expected to contract to C$1.9 billion for September, from C$2.5 billion in the previous month.

Other Markets: European indices closed higher on Thursday, with the FTSE 100, DAX 40, CAC 40 and Stoxx Europe 600 up by 0.02%, 0.78%, 0.42% and 0.46%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 138.76 and 139.03 Positive
GBP/USD – 1.2104 and 1.2116 Negative
Nasdaq 100 – 11821.87 and 11853.49 Negative
Nikkei 225  – 28312.16 and 28361.16 Negative
Silver – 21.445 and 21.533 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0412, -0.01%) Dow ($34,250, 0.11%) Brent ($85.46, 0.4%)
GBP/USD (1.2103, -0.12%) S&P500 ($4,042, 0.22%) WTI ($78.28, 0.4%)
USD/JPY (138.76, 0.10%) Nasdaq ($11,909, 0.39%) Gold ($1,757, 0.6%)

What else to watch today

Germany’s GfK consumer climate indicator and GDP growth rate, France’s consumer confidence, initial jobless claims and unemployed persons, Spain’s producer prices, Italy’s consumer confidence and manufacturing confidence, India’s foreign exchange reserves, Mexico’s GDP growth rate, economic activity and current account, Brazil’s current account, foreign direct investment and government revenues, as well as Central bank of Argentina’s interest rate decision.


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