Global equity rally extends in Asia before Powell

Sydney - Asian stocks built on the recent rally after US shares reached a four-week high and investors bet monetary policy tightening won’t be too severe to derail the bull run in equities.

Shares rose from Tokyo to Sydney after the S&P 500 recovered most of the losses emanating from the slump that hit global stock markets at the start of the month. The MSCI Asia Pacific Index of stocks also recouped almost all of February’s losses.

The 10-year Treasury yield was steady after falling to a two-week low as investors await the first public comments from Federal Reserve chairman Jerome Powell on Tuesday. Oil was steady after its recent rebound.

The pace of US monetary policy tightening remains a hot debate on Wall Street and traders are betting that Powell won’t seek to shock financial markets with overly hawkish comments this week.

Federal Reserve Governor Randal Quarles made clear on Monday he thought a sustained period of higher growth might require higher interest rates, but not severe as to halt the expansion.

"In some ways his hands are a bit tied," BNP Paribas Asset Management Senior Economist Steven Friedman told Bloomberg TV in New York.

"The path of least resistance for him is to really stick to the script, which is to reiterate that there is a lot of underlying momentum in the economy, that gives them more confidence in their projections, but ultimately the path of interest rate increases is going to be gradual."

Elsewhere, the euro fluctuated as European Central Bank President Mario Draghi said recent volatility, particularly in currency markets, deserves close monitoring and that the euro-area’s economy is expanding "robustly" and officials must remain persistent in providing stimulus.
The Bank of Korea kept its policy rate unchanged at 1.5%.

Here are some key events scheduled for this week:

Powell testifies before a House panel on Tuesday. He’ll discuss the Fed’s Semi-Annual Monetary Policy Report and the state of the economy. Powell returns on March 1 before a Senate committee. Companies announcing earnings this week include: Vale, BASF, Standard Chartered, Bayer, and Lowe’s.

UK Prime Minister Theresa May delivers a speech Friday on Britain’s relationship with the European Union after Brexit. A barrage of data is expected out of Japan including retail sales and industrial production Wednesday, and capital spending on Thursday.

In China, the official and Caixin purchasing managers’ indexes on Wednesday and on Thursday respectively may show growth momentum slowed slightly in February, though the signal may be clouded by the holidays.

These are the main moves in markets:

Stocks

Japan’s Topix index climbed 1% as of 10:53am in Tokyo. The Nikkei 225 Stock Average gained 1.4%. Australia’s S&P/ASX 200 Index rose 0.6%. South Korea’s Kospi index added 0.5%.

Hong Kong’s Hang Seng Index rose 0.4%. Futures on the S&P 500 were little changed. The S&P 500 rose 1.2% on Monday. The MSCI Asia Pacific Index advanced 0.8%.

Currencies

The Bloomberg Dollar Spot Index fell about 0.1%. The euro rose 0.1% to $1.2334. The yen was flat at 106.94 per dollar. The pound was trading at $1.3971. The Australian dollar added 0.2% to 78.67 US cents.

Bonds

The yield on 10-year Treasuries was flat at 2.86%, the lowest in almost two weeks. Australia’s 10-year yield held at 2.77%.

Commodities

West Texas Intermediate crude rose 0.1% to $63.98 a barrel, the highest in three weeks. Gold gained 0.2% to $1 336.54 an ounce.