Asian shares rise as hopes for audit deal boost China tech

August 26, 2022: Asian shares rose on Friday, buoyed by news of possible progress for China and the United States to hammer out an audit deal, while traders anxiously awaited a speech from Federal Reserve Chair Jerome Powell on the rate-hike path later in the day.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.6% in early Asia trade, driven by Chinese tech shares listed in Hong Kong that surged 1.3%. Hong Kong shares of Alibaba were up 4%.

That helped the Asian index eke out a 0.4% gain for the week.

The Wall Street Journal reported on Thursday that Washington and Beijing are nearing an agreement that allows American accounting regulators to travel to Hong Kong to inspect audit records of U.S.-listed Chinese companies.

Hong Kong's Hang Seng Index rose 0.7%, Japan's Nikkei advanced 0.9%, while South Korea gained 0.5%.

Overnight on Wall Street, stocks rose while U.S. Treasury yields slipped, as investors digested comments from Fed officials who continued hammering the point they will drive rates up and keep them there until inflation has been squeezed from the economy.

The S&P 500 climbed 1.4% and the Nasdaq gained 1.67%, lifted by gains in Nvidia and other technology-related stocks.

"So it is a fair bet that the Powell speech will take a similar turn today," said Robert Carnell, regional head of Research, Asia-Pacific, at ING.

"If so, the most likely market reaction would be a rise in yields at both the front and back of the yield curve, a sell-off in equities and dollar strength as markets seem to have been positioning themselves for a more supportive set of comments."

Investors have pared back expectations the Fed could tilt to a slower pace of rate hikes as U.S. inflation remains at 8.5% on an annual basis, well above the Fed's 2% target. But Powell's speech due on Friday will be scrutinised for any indication that an economic slowdown might alter the Fed's strategy.

Interest rate futures now imply a 60% chance of a 75 bp Fed hike in September.

"The experience of Jackson Hole 2021 will make the Fed Chair cautious in making the same error twice. That itself argues against his messaging looking too far forward, or, erring on the dovish side," said Alan Ruskin, macro strategist at Deutsche Bank.

"Markets have however largely taken this on board, which risks a small, short-lived 'buy the rumour, sell the fact' technical bond rally, sell the USD, and relief equity trade."

In the currency markets, the dollar was little changed against a basket of major currencies. The commodity-exposed Australian and New Zealand dollars fell 0.4% versus the greenback after a strong rebound in the previous day.

The yield on benchmark 10-year Treasury notes was up slightly to 3.0425%, compared with its U.S. close of 3.024% the previous day.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 3.3803%, compared with a U.S. close of 3.374%.

Oil prices recovered some ground on Friday after slumping by about $2 a barrel in the previous session on the possible return of sanctioned Iranian oil exports and on worries from rising U.S. interest rates.

Brent crude rose 0.5% in early Asia trade to $99.87 per barrel and U.S. crude was up by a similar margin to $96.01 a barrel.

Gold was slightly lower. Spot gold was traded at $1755.4698 per ounce.

Reuters