Asian Stocks Set to Follow Wall Street’s Rebound: Markets Wrap

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(Bloomberg) — Stocks in Asia are set to track a rebound on Wall Street as investors looked beyond Joe Biden ending his reelection campaign to focus on the start of the tech earnings season.

Futures pointed to gains in Hong Kong, Tokyo and Sydney, with the S&P 500 jumping 1.1% after three days of losses. Despite the earlier selloff, almost two-thirds of respondents to Bloomberg’s Markets Live Pulse survey expect earnings to reinvigorate the US benchmark, with results from Tesla Inc. and Alphabet Inc. due later Tuesday. US equity futures were little changed in early trading.

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Sky-high valuations and seasonal weakness have incited some stock pullback warnings, with traders also facing political uncertainties. Yet even with the many headlines that followed Biden’s decision to quit the race and endorse Kamala Harris, a sense of calm prevailed Monday. Volatility slumped as dip buyers emerged.

“This political shake-up shouldn’t materially alter the direction of the markets,” said Tom Essaye at The Sevens Report. “The ultimate direction of the S&P 500 will still be determined by economic growth.”

The S&P 500 rose the most since early June. The Nasdaq 100 added 1.5%. A gauge of the “Magnificent Seven” climbed about 2.5%, led by gains in Tesla and Nvidia Corp. The Nasdaq Golden Dragon China Index, a gauge of US-listed Chinese shares, advanced 2.8%. 

Treasury yields edged higher, setting the stage for this week’s readings on the economy as well as the Federal Reserve’s preferred inflation gauge. For much of July, bets on a rate cut in September drove shorter-term bonds up — narrowing the gap with longer-dated maturities. 

Australian bond yields advanced for a third day on Tuesday, while the currency was little changed after a six-day slump — its longest losing streak in eleven months as commodity prices tumbled. The greenback was steady in early Asian trading. 

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Strategists at BlackRock Investment Institute are reiterating their conviction in US equities after the S&P 500 logged its worst week in three months.

“We see pullbacks as an opportunity to lean into stocks,” a team led by Wei Li wrote. “Looking through near-term noise” of the small-cap rally, big tech is likely to keep driving returns as companies carry positive earnings results for the market, the strategists said.

After driving the rally in US stocks for most of the year, big tech slammed into a wall last week. Investors rotated from high-flying megacap shares to riskier, lagging parts of the market, spurred by bets on Fed rate cuts and the threat of more trade restrictions on chipmakers.

Profit estimates for the S&P 500 in the second quarter haven’t been cut as much as previously, according to JPMorgan Chase & Co. strategists, a sign that there’s little room for disappointment this earnings season. A team lead by Mislav Matejka said usually projections fall by 5% in the three months before results, but this time it’s been about 1%.

The “market is trading near highs, with full positioning and extreme concentration, suggesting that there is not much scope to absorb any disappointments,” they wrote.

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“The heart of earnings season begins this week and plenty of tech companies report, which should give investors an idea of how healthy the overall economy looks through corporate eyes,” said Paul Nolte at Murphy & Sylvest Wealth Management.

Key events this week:

• Eurozone consumer confidence, Tuesday
• US existing home sales, Tuesday
• Alphabet, Tesla, LVMH earnings, Tuesday
• Canada rate decision, Wednesday
• US new home sales, S&P Global PMI, Wednesday
• IBM, Deutsche Bank earnings, Wednesday
• Germany IFO business climate, Thursday
• US GDP, initial jobless claims, durable goods, Thursday
• US personal income, PCE, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• Hang Seng futures rose 0.4% as of 8:05 a.m. Tokyo time
• S&P/ASX 200 futures rose 0.7%
• Nikkei 225 futures rose 1%
• S&P 500 futures were little changed; the S&P 500 rose 1.1%
• Nasdaq 100 futures fell 0.1%; the Nasdaq 100 rose 1.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The Australian dollar was little changed at $0.6644

Cryptocurrencies

• Bitcoin fell 0.6% to $67,706.51
• Ether was little changed at $3,490.75

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.25%
• Australia’s 10-year yield advanced three basis points to 4.34%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

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