Asian equities advance for further recovery
The rebound has reversed much of the declines seen during a wrenching selloff early this month, which were stoked by interest-rate worries. All major benchmarks in Asia remain lower for February, though indexes in Singapore and Australia are closest to break-even.
Singapore’s Straits Times Index STI, +1.28% rose 1.3%, and Korea’s Kospi SEU, +1.54% closed up 1.5%, the best day since Oct. 10. Taiwan’s Taiex Y9999, +1.24% finished up 1.2%. The Taiex jumped 3.6% this week, the most since September 2016.
“Asia is in a good position to ride out interest-rates hikes from the Federal Reserve given the prospects of a weaker dollar and a solid outlook for Asian exports,” said Christy Tan, head of markets strategy/research for Asia at National Australia Bank.
The inflation picture remains benign. January readings for Singapore and Japan out Friday were both weaker than expected.
Solid stock gains were seen in many parts of Asia-Pacific. Hong Kong’s Hang Seng Index HSI, +0.97% rose 1%, a gauge of Chinese companies with listings in the city climbed 2% and Australia’s S&P/ASX 200 XJO, +0.82% ended 0.8% higher to cap its best week since October.
China’s big-cap CSI 300 advanced 0.5% after the market’s 2% jump Thursday. But the startup-heavy ChiNext index in Shenzhen fell 0.5%.
Meanwhile, Chinese authorities took control of Anbang Insurance Group Co., an acquisitive conglomerate.
European stocks swing to positive for the week, tracking U.S. stocks higher
How markets are trading
After shifting between small gains and losses through the day, the Stoxx Europe 600 index SXXP, +0.22% ended 0.2% higher at 381.16. That helped swing the pan-European benchmark into positive territory for the week, ending with a 0.1% weekly gain.
France’s CAC 40 PX1, +0.15% closed up 0.2% at 5,317.37, while Germany’s DAX 30 index DAX, +0.18% rose 0.2% to 12,483.79.
Underperforming the major European indexes, the U.K.’s FTSE 100 UKX, -0.11% dropped 0.1% to 7,244.41.
The euro EURUSD, -0.2757% bought $1.2296, down from $1.2332 late Thursday in New York.
The yield on the 10-year German bond TMBMKDE-10Y, +0.00% fell 5 basis points to 0.650%, according to Tradeweb. Yields fall when prices rise.
What’s driving markets
European equities this week have largely followed moves on Wall Street. Analysts have said the recent global rout in stocks stemmed largely from concerns that a quickening pace of U.S. inflation could prompt the Fed to raise interest rates more than anticipated this year.
In its latest report to Congress, the Federal Reserve gave no signs it was planning to hike rates faster than currently expected, reflecting uncertainty among senior officials about how fast inflation will rise this year.
U.S. stock moved firmly higher on Friday, after the S&P 500 SPX, +1.60% and the Dow Jones Industrial Average DJIA, +1.39% finished Thursday with gains.
What strategists are saying
“Fears revolving around rising inflationary pressures and rate hike jitters have certainly left investors skittish this trading week. Investors seem to be on edge about higher interest rates and as such, this continues to encourage global equity bulls and bears to engage in a tough tug of war,” said Lukman Otunuga, research analyst at FXTM.
“With investors on guard as global stock markets become increasingly sensitive to the prospect of rising inflation and interest rates, equity bears could steal the show,” he said in a note.
Royal Bank of Scotland Group PLC RBS, -4.82% RBS, -3.78% shares dropped 4.8% as the majority state-owned lender posted its first full-year profit in 10 years. However, RBS said it has yet to agree a settlement with the U.S. Department of Justice over alleged mis-selling of mortgage-backed securities.
Phoenix Group Holdings shares PHNX, +7.31% jumped 7.3% after the insurer said it bought Standard Life Assurance Ltd. from Standard Life Aberdeen PLC in a reverse takeover for £2.93 billion ($4.09 billion). Shares of Standard Life Aberdeen SLA, -2.49% ended down 2.5%.
Deutsche Telekom AG DTE, +3.19% shares rose 3.3%. The German telecommunications company said late Thursday it had returned to profit in the fourth quarter of 2017, largely boosted by the effects of U.S. tax reform.
Swiss Re SREN, +2.46% rose 2.5% after the reinsurance heavyweight said it’s not considering issuing new capital. The company did say it’s “carefully assessing” the implications of a deal with SoftBank Group Corp. 9984, +1.38% , and it reported a fall in net profit in 2017.
Valeo SA FR, -11.09% tumbled 11%. The French automotive supplier said late Thursday its 2017 net profit fell year-on-year, despite both sales and order intake increasing.
International Consolidated Airlines Group SA shares IAG, -5.69% ICAGY, -4.62% fell 5.7%. The British Airways parent said it was engaging a €500 million share-buyback program, and that pretax profit rose in 2017. The results were “mixed,” said Accendo Markets, with revenues in line. while adjusted per-share earnings of €1.02 fell short of a €1.06 consensus estimate.
Economic activity in Germany slowed toward the end of 2017, but a booming export sector kept Europe’s largest economy on a solid growth path, according to new data. Germany’s Federal Statistical Office said gross domestic product grew 0.6%, or an annualized rate of 2.5%, in the fourth quarter, easing somewhat toward the end of 2017. The report confirmed preliminary figures.
Eurostat confirmed that eurozone inflation was at 1.3% in January, down from 1.4% in December.
Dow surges 350 points as stocks book weekly gains
A report from the Federal Reserve, a precursor to Federal Reserve Chairman Jerome Powell’s comments in front of Congress next week, offered few signs that the central bank would adopt a more aggressive monetary-policy tacked.
What are the main benchmarks doing?The Dow Jones Industrial Average DJIA, +1.39% rose 347.51 points, or 1.4%, to 25,309.99, benefiting from sharp gains in components Goldman Sachs Group Inc., underlining rising demand for bank stocks which are likely to profit as benchmark yields march higher. The index has been up for two straight weeks, representing its largest two week climb, up 4.6%, since Nov. 18, 2016, according to WSJ Market Data Group.
The S&P 500 index SPX, +1.60% added 43.34 points, or 1.6%, to 2,747, buttressed by broad sector gains and highlighted by advances of more than 2% in the energy and technology sectors. The two straight weeks of gains for the equity index, up 2.9% over that period, are its most since Feb. 13, 2015.
The tech-laden Nasdaq Composite Index COMP, +1.77% meanwhile, surged 127.30 points, or 1.8%, to end at 7,337.39, snapping a four-session skid, and putting the index just 2.2% shy of its Jan. 26 peak at 7,505.77. It produced its best two-week stretch, up 6.7%, since Oct. 31, 2014.
For the week, the Dow climbed 0.4%, the S&P 500 logged a weekly climb of 0.6%, while the Nasdaq Composite notched a return of 1.4% over the period, outstripping its equity benchmark peers.
Read: This doggy Dow stock can teach you smart value investing tricks
hat couWld drive markets?In its semiannual monetary-policy report, the Fed signaled that it saw broad improvement in the U.S. economy and pointed to a pickup in inflation toward the end of last year, but didn’t suggest that a rise in prices warranted more aggressive policy action.
Indeed, the Fed stuck to its forecast for inflation to hover at or below its 2% target in 2018. The 12-month rate of inflation based on the Fed’s preferred PCE index stood at 1.7% in December.
The Fed’s summary comes ahead of newly minted Powell’s testimony about the economy before Congress next week.
Powell’s testimony arrives ahead of the Fed’s key monetary-policy convention next month, but after a release of minutes for January on Wednesday rattled investors, already fretting about inflation and bond yields drifting higher.
Wednesday’s minutes sparked a downdraft in equities as the yield of the 10-year Treasury note TMUBMUSD10Y, +0.00% hit a fresh four-year high above 2.956%, undercutting appetite for assets perceived as risky like stocks. Most recently, the 10-year Treasury note was down about basis points at 2.87%.
On Thursday, bond yields moderated after St. Louis Fed President James Bullard cast doubt on the likelihood of four rate rises this year, dampening expectations of a faster pace of action.
Read: Here’s why stock-market investors need to keep an eye on the yield curve
Separately, comments from Treasury Secretary Steven Mnuchin were drawing attention. In an interview with Bloomberg, Mnuchin brushed aside concerns over rising wages, saying these didn’t necessarily have to trigger a rise in overall inflation. The Fed policy report appeared to echo that view.
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What are strategists sayingDoug Cote, chief market strategist at Voya Investment Management, said strong corporate earnings, healthy readings of manufacturing justify an upbeat outlook for stocks and bond yields rising off ultralow levels.
“With that economic growth interest rates are rising and that is a good thing. There is no way the economy can be growing at 3%, as it is now, without the 10 year yield also going up but this is like a high-quality problem,” Cote said.
“Because although it will discount equities and create more volatility, it is a sign that secular stagnation, disinflation…are finally in the rearview mirror and now we’re in a normal market,” he said, referring to a period framed by easy-money policies across much of the globe in the wake of the 2007-09 financial crisis.
“I think it was very impressive move for stocks [Friday] after seeing these heavy market selloffs,” said J.J. Kinahan, chief strategist at TD Ameritrade.
He said dovish remarks by the Fed and the monetary policy report helped eased market jitters.
“I think we are set up for an interesting Monday morning. Can we build on this momentum and go forward or is this as quick fade,” Kinahan said
What did Fed speakers say?New York Fed President William Dudley spoke out in favor of the effectiveness of quantitative easing as a stimulus tool, arguing against a paper from Wall Street economists saying that it only had a modest impact.
Cleveland Fed President Loretta Mester said the central bank could look into changing its policy framework later in the year, which could mean a change to its current 2% inflation target.
San Francisco Fed President John Williams said the economy is steadily improving and sees a positive outlook which warrant gradual rate hikes, speaking at the City Club of Los Angeles on Friday.
Which stocks were moving?
Shares of Blue Buffalo Pet Products Inc. BUFF, +17.23% soared 17.2% in after General Mills Inc. GIS, -3.59% announced an $8 billion buyout of the company. Shares of General Mills were off 3.6%.
Hewlett-Packard Enterprises Co. HPE, +10.54% shares jumped about 10.5% after the enterprise-focused tech group reporting a strong fiscal first quarter. Read:HP Enterprise earnings jolt stock, but there isn’t much to be excited about
Shares of HP Inc. HPQ, +3.46% rose 3.5% after the consumer-focused tech company beat earnings expectations and raised its full-year forecast.
Shares of Xcerra Corp. XCRA, +0.10% could be active after the company that provides testing technology for semiconductors and electronics said it would terminate its sale to a Chinese group, saying federal approval was too hard to get for the $580 million deal. The company’s shares ended up 0.2%.
How are other assets performing?European stocks SXXP, +0.22% finished higher on the day taking cues from U.S. equities, while Asian stocks rebounded to mark a second-straight week of gains.
Gold prices GCG8, -0.06% slipped, ending Friday trade lower, while the dollar DXY, +0.19% as gauged by the ICE U.S. Dollar Index DXY, +0.19% rose 0.2% to 89.950. Oil prices CLJ8, +1.27% settled in the green after rig-count data.