Fed outlook outperforms Moody’s downgrade, stocks rise, bonds calm

Kevin Buckland

TOKYO (Reuters) – Asian shares rose on Monday while U.S. Treasuries and the dollar remained calm, as investors led Wall Street’s gains on Friday, shrugging off a cut in the U.S. credit outlook from Moody’s.

Long-term Treasury yields have calmed since the start of the month, boosting the outlook for growth stocks that rely on borrowing, with technology stocks standing out as they did in the U.S. over the weekend.

The U.S. 10-year Treasury yield held steady around 4.646%, having consolidated near the top of its range since Nov. 3, when weak labor market data fueled bets on a less hawkish Fed stance. The yield in November was as high as 4.935%..1.

The U.S. dollar index hovered below Friday’s post-NFP high of 106.01, last trading little changed around 105.80.

Japan’s Nikkei rose 0.46%, with chip-related stocks rising the most; Taiwan’s technology stock index rose 1.17%.

Hong Kong’s Hang Seng Index rose 0.49% as technology stocks performed well.

However, mainland China’s blue-chip stocks edged lower, with Australia’s resources benchmark index down 0.13%.

Nomura Securities strategist Naka Matsuzawa said the stock market may be close to a peak.

“So far, the market has been treating bad economic news as good news because it would mean a pause in the Fed’s rate hikes,” he said.

“But now, the Treasury market has priced in the pause, so there’s not much room for Treasury yields to fall further,” he added. That removed support for stocks. “In short, I don’t think the stock market rally will continue.”

Moody’s announced on Friday night that it had lowered the outlook for the U.S. credit rating from “stable” to “negative”, but the market did not pay attention.

Instead, the focus remains on upcoming economic data, with U.S. consumer price index and retail sales data due on Tuesday and Wednesday respectively.

Meanwhile, crude oil prices fell on Monday as demand concerns outweighed supply concerns amid slowing economic growth in the United States and China. [O/R]

January Brent crude futures fell 35 cents, or 0.4%, to $81.08 a barrel, while U.S. West Texas Intermediate (WTI) December futures fell 35 cents, or 0.5%.

Both benchmarks rose nearly 2% on Friday as Iraq expressed support for OPEC+ production cuts.

(Reporting by Kevin Buckland)

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