Asia Gains on U.S. Interest Rate Optimism; China Reopens

Monday's gains in Asian equities were driven by optimism on more moderate U.S. rate hikes and China's border opening.

The broadest Asia-Pacific ex-Japan index tracked by MSCI rose 0.6%, with South Korean stocks gaining 1.0%.

Nikkei futures traded at 26,235, compared to the cash close of 25,973 on Friday. Futures for the S&P 500 and Nasdaq climbed 0.2% and 0.3%, respectively.

This week, large U.S. banks will begin reporting earnings, and Wall Street does not anticipate any year-over-year growth.

"Excluding Energy, S&P 500 EPS is anticipated to decline 5% due to margin compression," analysts at Goldman Sachs stated (NYSE:GS). The prognosis is grim as the earnings season approaches.

They stated, "We anticipate additional downward revisions to 2023 EPS estimates." The reopening of China represents an upside risk to EPS in 2023, whilst margin pressures, taxation, and recession are downside risks.

Beijing has unlocked borders that had been restricted since the COVID-19 outbreak, allowing a rise in traffic.

Analyst Winnie Wu of Bank of America (NYSE:BAC) forecasts a cyclical upturn in China's economy in 2023, as well as market upside from multiple expansion and 10% EPS growth.

Last week, positive payroll gains, slower wage growth, and a decline in service-sector activity improved Wall Street confidence. Bets on Fed rate hikes decreased.

Futures imply a 25% chance of a 0.5 percentage point increase in February, down from 50% a month ago.

Investors will pay close attention to anything Fed Chair Jerome Powell says in Stockholm on Tuesday.

It also emphasizes Thursday's U.S. consumer price index (CPI) data, which is anticipated to show annual inflation falling to a 15-month low of 6.5% and the core rate falling to 5.7%.

John Briggs, an analyst at NatWest Markets, stated, "We have lower CPI forecasts than the consensus, and if accurate, this will likely confirm 25bps versus 50bps."

Indicative of a funds rate between 5.5 and 5.25 percent, the Fed is expected to raise rates a couple more times and maintain them at elevated levels until inflation's decline is assured.

Friday's mixed data decreased 10-year interest rates by 15 basis points to 3.57% and weakened the U.S. dollar.

Monday morning found the euro at $1.0664, up from Friday's low of $1.0464. The dollar declined from 134.78 yen last week to 131.63 yen this week, and its index fell to 103.800.

Since hundreds of Bolsonaro supporters assaulted Congress, the presidential palace, and the Supreme Court, the Brazilian real had not been traded.

As the dollar and rates declined, gold reached a seven-month high of $1,870 per ounce.

Oil prices remain unchanged following an 8% decline last week due to demand concerns.

Brent increased 26 cents to $78.83 per barrel, while U.S. crude increased 30 cents to $70.77 per barrel.