Asian stocks head for best week in over a year

August 16, 2024 (MLN): Asian stocks rallied as traders flocked back into risk assets amid growing expectations that the US economy will avoid a recession, Bloomberg reported.

Treasuries held losses, while the yen is set for its worst week since May.

Almost all major stock benchmarks gained in Asia, with a regional gauge on track for its best weekly performance in more than a year.

Japanese equities rose at the expense of a weaker yen, which boosts exporters’ earnings.

The currency fell 1.3% against the dollar on Thursday, and was trading around the 149 level, easing fears of a massive carry trade unwind.

A slew of US data this week, from inflation to jobless claims to retail sales, has reassured investors, supporting the view that the world’s biggest economy is heading for a “Goldilocks” scenario where inflation is contained without stalling growth.

Global stocks have largely erased last week’s losses, when traders were worried the Federal Reserve won’t cut rates fast enough to prevent a recession.

“Asian equities are enjoying an impressive run today, driven by a renewed sense of ‘perfect balance’ thanks to recent well-anticipated economic releases,” said Hebe Chen, an analyst at IG Markets Ltd. “Japanese stocks, in particular, continue their robust recovery with no signs of slowing down yet.”

Treasuries in Asia were steady after Thursday’s dip as signs of a resilient US economy in the latest data releases prompted traders to dial back bets for a jumbo September rate reduction.

They are now pricing in less than a 30-basis point cut next month, with a total of 92 basis points of reduction expected for the remainder of 2024.

As fears around the US economy eased, equities extended a rebound from last week’s meltdown that rattled global markets.

The S&P 500 extended a six-day rally to 6.6% on Thursday, marking the best performance in such a span since November 2022.

Walmart Inc., often seen as a barometer of growth, jumped on a solid outlook.

Meanwhile, Wall Street’s “fear gauge” — the VIX — dropped around 15 after spiking to 65 last week.

This rebound for US stocks from the heavy selling last week suggests that trend-following quant funds may soon return, which could provide further support to stocks.

In Japan, stocks headed for their biggest weekly advance since April 2020, driven by renewed weakness for the yen.

This weakness may even attract some hedge funds back to the carry trade that blew up two weeks ago.

“Exporters are gaining on a weak yen and solid US economic figures,” said Hiroshi Namioka, chief strategist at T&D Asset Management Co. “Stocks that saw a huge selloff in the past month are being bought back as the market calms down from the rout.”

Elsewhere in Asia, China’s central bank chief pledged further measures to support the country’s economic recovery, while cautioning that it won’t adopt “drastic” measures.

Meanwhile, Australian sovereign bond yields climbed Friday, partly tracking the move in Treasuries and as the nation’s central bank governor said the Reserve Bank of Australia remains some way off easing monetary policy.

Alibaba Group Holding Ltd. rose as optimism over tech stocks outweighed concerns about its earnings. JD.com Inc. gained the most since March after beating net profit estimates in results released late Thursday.

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