China fuels Asian stocks rally, oil climbs on Red Sea worries

Economy MARKET_WATCH

Asian stocks started the week on the front foot, as new steps by Beijing to stabilise the local market outweighed the drag on sentiment from the liquidation of property giant China Evergrande (HK:3333).

However, investors were also sensitive to geopolitical risks with oil rising after a Houthi missile attack caused a fire on a fuel tanker in the Red Sea and a drone attack killed three U.S. troops in Jordan.

The dollar and U.S. Treasury yields hovered in the middle of recent ranges ahead of a highly anticipated Federal Reserve policy meeting later in the week.

In general, the mood in Asia was upbeat with MSCI's broadest index of Asia-Pacific shares outside Japan up 0.7% as of 0610 GMT.

The main drag to stocks came from a Hong Kong court order to liquidate Evergrande, the poster child of China's property meltdown.

Hong Kong's Hang Seng trimmed gains on the news to be up 0.74%, off the 1.9% gain made after China's securities regulator said on Sunday it would fully suspend the lending of restricted shares.

Mainland China blue chips had struggled to make headway early in the session, and eventually slumped 0.64%.

Elsewhere, though, Chinese stimulus optimism provided additional momentum to markets that had already started the day on a firm footing. Japan's Nikkei closed up 0.77%, while South Korea's Kospi advanced 1.47%.

"People want to believe in what (Beijing is) doing, it's just that they had a little bit of a hiccup in terms of communicating their policy intent at the beginning of the year," said Damien Boey, chief macro strategist at Barrenjoey in Sydney.

"Now, authorities seem to be trying to rectify that (and) unsurprisingly, you are now starting to see stabilisation in Chinese equities," he said. "It may not exactly be the bottom right now, but I think things will eventually get better with a few bumps along the way."

U.S. stock futures pointed slightly lower after the S&P 500 slipped 0.07% on Friday to snap five straight days of fresh all-time closing highs.

The backdrop for that was continued moderation in U.S. consumer inflation in Friday's data, which added to the narrative for Fed rate cuts in coming months but also suggested policy makers had little pressure to rush.

Markets expect the Fed to keep policy steady on Wednesday, but will be hunting for clues on when a first rate cut might come. Economists mostly predict June, but traders are pricing the risk of a March move at essentially a coin toss, according to CME Group's (NASDAQ:CME) FedWatch Tool.

The U.S. dollar index, which tracks the currency against six major peers, stuck to the middle of its range of the past two weeks at 103.52, little changed from Friday.

Long-term Treasury yields declined about 3 basis points to 4.1315%, putting them near the centre of their range since Jan. 18.

Last week's U.S. data continued the "remarkable run" of not-too-hot and not-too-cold economic indicators, pointing to a soft landing and a May start to policy easing, Commonwealth Bank of Australia (OTC:CMWAY) strategists wrote in a client note.

Odds for a March move should continue to be priced out this week, leading the dollar index to test 104 and bond yields to rise "modestly," they said.

The dollar was little changed at 148.06 yen, while the euro eased 0.1% to $1.08395. Sterling was steady at $1.2704.

In energy markets, Brent crude futures rose 29 cents, or 0.4%, to $83.84 a barrel and U.S. West Texas Intermediate crude gained 34 cents, or 0.4%, to $78.35 a barrel amid escalating risks of a widening of the Middle East conflict, which could disrupt supplies.

Safe-haven gold added 0.33% to $2,024.91.

Cryptocurrency bitcoin ticked up to $42,178.

Source : Economy News by Reuters / Jan 29, 2024

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