International Finance: Asia stocks climb as traders bet on Fed slowdown: markets wrap

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Asian stocks rose after US equities had their best day in more than a month on Friday as traders speculate that an unexpected contraction in services activity and a slowdown in wage growth will temper the Federal Reserve’s rate hike aggression.

Australian stocks gained as much as 1.1%, Korean shares rose 2.1% and US equity futures edged higher after the S&P 500 jumped more than 2% on Friday to salvage the first weekly advance in the past five. Stocks in Hong Kong and Shanghai gained 1.7% and 0.6% respectively after a People’s Bank of China official suggested growth will rebound sharply. Japanese markets are closed for a public holiday.

The dollar extended Friday’s drop after the Institute for Supply Management’s index of services fell by the most since April 2020 to contractionary territory and cooler wage growth fueled expectations the Fed will slow its pace of rate hikes. The South Korean won jumped above 1,250 per dollar for the first time in six months.

The December inflation report due on Thursday will be front of mind for traders after the jobs data failed to offer a clear picture of the state of the American labour market, with unemployment at its lowest level in decades, while wage gains were weak.

While pressure on the Fed to hike by 50 basis points on Feb. 1 has eased, “policy makers appear to be increasingly frustrated by market-pricing at odds with Fed signalling in terms of both the terminal funds rate and timing of initial rate cut”, BNP Paribas economists led by Carl Riccadonna wrote in a note to clients. “This could tilt their bias toward a more forceful response at the next meeting.

Investors will also be keeping a close eye on Brazilian assets after thousands of supporters of former president Jair Bolsonaro stormed the country’s top government institutions in an insurrection that will test the leadership of President Luiz Inacio Lula da Silva just a week after he took office.Kospi Index surged 2%Nikkei 225 futures added 0.9% on Friday. Cash markets are closed for a public holidayThe Japanese yen gained 0.2% to 131.78 yen per dollar on MondayBitcoin rose 1.4% to $17,189.

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