Asian Stocks Poised to Mirror Wall Street's Rebound: Market Update

Asia Set to Follow Wall Street's Rebound Amid Tech Earnings Season

Asian stocks are poised to mirror Wall Street’s recovery as investors turn their attention to the tech earnings season, moving past the political news of Joe Biden ending his reelection campaign. Futures indicate gains in markets such as Hong Kong, Tokyo, and Sydney, after the S&P 500 surged by 1.1% following a bout of losses over three days. According to a Bloomberg survey, nearly two-thirds of respondents believe upcoming earnings, particularly from Tesla and Alphabet, will rejuvenate the US benchmark index.

US equity futures remained relatively stable early Tuesday. Some stock pullback warnings have been issued due to high valuations and seasonal weaknesses, compounded by political uncertainties. However, despite the flurry of headlines around Biden's decision and his endorsement of Kamala Harris, markets remained calm on Monday with a noticeable decline in volatility as dip buyers emerged. Tom Essaye from The Sevens Report noted that this political change is unlikely to materially impact market direction, which will still be driven by economic growth.

Tech Drives Rebound; Treasury Yields Edge Higher

The S&P 500 recorded its largest gain since early June, while the Nasdaq 100 rose 1.5%. The “Magnificent Seven” tech giants, including Tesla and Nvidia, witnessed a rise of approximately 2.5%. Meanwhile, the Nasdaq Golden Dragon China Index, which tracks US-listed Chinese stocks, advanced by 2.8%. Treasury yields inched higher, setting the tone for upcoming economic readings and the Federal Reserve’s favored inflation measure. In July, anticipation of a rate cut in September boosted shorter-term bonds, narrowing their gap with long-term maturities. Australian bond yields also increased for a third consecutive day, although the currency stabilized after experiencing its longest losing streak in eleven months amid falling commodity prices. The US dollar remained steady in early Asian trading.

Strategists Remain Confident

BlackRock Investment Institute’s strategists reiterated their belief in US equities following the worst week for the S&P 500 in three months. They emphasized the benefits of using market pullbacks as opportunities to invest in stocks. Notwithstanding short-term fluctuations attributed to a small-cap rally, they highlighted that big tech would likely continue driving market returns, fueled by positive earnings reports.

Last week saw a shift from high-performing megacap stocks to riskier, less-performing sectors, driven by expectations of Fed rate cuts and the potential for more trade restrictions on chipmakers. JPMorgan Chase & Co. strategists observed that S&P 500 profit estimates for the second quarter have not been significantly lowered, suggesting limited scope for disappointment this earnings season.

Key Events and Market Movements

Essential events this week include the Eurozone consumer confidence report and US existing home sales data on Tuesday. Alphabet, Tesla, and LVMH are set to release earnings on the same day. Wednesday will see a rate decision from Canada and reports on US new home sales and S&P Global PMI. IBM and Deutsche Bank's earnings are expected then as well. Thursday's key data points are Germany’s IFO business climate, US GDP, initial jobless claims, and durable goods orders. Friday holds insights on US personal income, PCE, and University of Michigan consumer sentiment.

As markets gear up for these events, futures on various indices have shown positive movement. Hang Seng futures rose 0.4%, S&P/ASX 200 futures increased 0.7%, and Nikkei 225 futures were up 1%. The S&P 500 futures remained stable after the index's 1.1% gain, while Nasdaq 100 futures fell 0.1% following a 1.5% increase. The Bloomberg Dollar Spot Index and the Australian dollar showed little change. In cryptocurrencies, Bitcoin fell 0.6% to $67,706.51, and Ether remained steady at $3,490.75. Bond yields on 10-year Treasuries and Australia’s 10-year yield edged up slightly. In commodities, West Texas Intermediate crude and spot gold experienced minimal changes.