Asian stocks opened higher on Tuesday following a rebound in the final hour of New York trading as investors continue to weigh the market impact of super-sized interest rate hikes from the Federal Reserve.
Japan led gains with a jump of more than 1% after a holiday. US futures pushed higher. The Nasdaq Golden Dragon Index of US-listed Chinese shares advanced ahead of prime loan data due this morning.
Treasury 10-year yields hovered near 3.5% while the more policy-sensitive two-year rate hit the highest since 2007, amid fears that that an overtightening of monetary settings raises the odds of a hard landing. The dollar slid slightly.
Traders are betting the Fed will hike by 75 basis points Wednesday, signal rates are heading above 4% and will then pause. The long hold strategy is rooted in the idea the central bank would avoid the disastrous stop-go policy of the 1970s that allowed inflation to get out of hand.
Swap contracts that forecast rates over the next two years now peak around 4.5% in March 2023 - a full point higher than was expected after the last meeting in July.
Strategists at JPMorgan Chase & Co. estimate the Fed will increase rates to 4.25% by early next year. "We expect central bank tightening and a fading of supply chain pressures to moderate job growth and core inflation. In turn, we anticipate this will allow the Fed and other central banks to pause in 1H23," strategists including Marko Kolanovic and Nikolaos Panigirtzoglou wrote in a note on Monday.
In a time-tested harbinger of an economic downturn, short-term US rates have exceeded yields on longer maturities for months. The MLIV Pulse survey, which drew 737 responses, showed that the bulk of contributors expect a deeper inversion. Some see it reaching levels last seen in the early 1980s, when Paul Volcker ratcheted up borrowing costs to break the back of hyperinflation.
Elsewhere, Bitcoin remained below $20,000 level. Oil edged higher at around $86 per barrel and gold was steady.
The majority of the MLIV survey's contributors say it's best to bet on dollar gains, and 44% prefer to sell stocks.
