Stocks rose in Australia and also in Japan and South Korea, with investors appearing to shrug off news that North Korea fired a missile over Japan for the first time since 2017.
US equity futures gained after the S&P 500 had its best day since July. Treasury yields fell across the board, with the 5-year rate dropping as much as 31 basis points after a US manufacturing gauge declined more than expected.
Traders pared bets on Fed hikes, with swaps tied to Fed policy meeting dates falling sharply for early 2023. The March meeting contract’s rate dropped, suggesting a peak policy rate of 4.45% next year, down from recent highs above 4.60%. The dollar fell.
In the latest sign the Fed’s five rate hikes totalling 3 percentage points may be taking their toll, the Institute for Supply Management’s gauge of factory activity fell to a more than two-year low.
The Fed should consider stopping its tightening campaign after one more interest-rate hike in November, according to Ed Yardeni, a market veteran who coined terms like “Fed Model” and “bond vigilante”.
US stocks rebounded on the first trading day of the month after the S&P 500 posted its worst September in two decades, a selloff driven by concern an overtightening Fed could tip the economy into a recession. More data due this week, notably the monthly payrolls report on Friday, should provide clues on how the job market is holding up.
Fed speakers continued the drumbeat over rate hikes. New York Fed president John Williams said the US central bank has yet to raise interest rates to levels that are restricting economic growth, and tightening still has “significant” ways to go.
“I think we’ve underestimated the pain of the stall out,” Nicole Webb, SVP and financial advisor at Wealth Enhancement Group, said on Bloomberg Television. “At some point the Fed does stop raising but however how long they hold us or suspend us there is still in question.”
A rate decision in Australia will be a focus on Tuesday. China’s onshore markets will remain shut this week for holidays, while the Hong Kong exchange will be closed Tuesday for the Chung Yeung Festival.
Elsewhere, oil steadied after the biggest one-day gain since May as traders looked to Opec+ to deliver on expectations for a major cut in supply. A final decision won’t be made until ministers gather in Vienna on Wednesday.
Brazilian assets soared after President Jair Bolsonaro secured his way to a runoff election against Luiz Inacio Lula da Silva as investors cheered on the incumbent’s better-than-expected showing and bet his leftist challenger will be forced to moderate his stances in the second stretch of the race. The real was the best-performing among the world’s major currencies Monday.