Stocks gain, bonds calm as Fed outlook trumps Moody’s downgrade

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Stocks in Asia rose on Monday while Treasuries and the dollar kept their composure, as investors took their lead from Wall Street’s Friday rally, shrugging off a Moody’s downgrade to the US credit outlook.

Tech stocks stood out, as they had in the US at the end of last week, after the calming of long-term Treasury yields since the start of this month boosted the outlook for borrowing-dependent growth shares.

US 10-year Treasury yields were stable at around 4.646%, consolidating around the top of their range since Nov. 3, when softer labour market data spurred bets for a less hawkish Federal Reserve. The yield had been as high as 4.935% on Nov. 1.

The US dollar index hovered below its post-payrolls-report high of 106.01, reached on Friday, last trading little changed around 105.80.

Japan’s Nikkei .N225 rose 0.46%, with chip-related shares providing the biggest boost. Taiwan’s tech-heavy equity benchmark rallied 1.17%.

Hong Kong’s Hang Seng gained 0.49% amid an outperformance in tech shares.

However, mainland Chinese blue chips were slightly lower, and Australia’s resource-heavy benchmark slipped 0.13%.

Nomura Securities strategist Naka Matsuzawa said equities are likely close to a peak.

“Up until now the market has been taking bad economic news as good news because that would mean a pause in Fed rate hikes,” he said.

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

The market paid little attention to a Moody’s announcement late on Friday that it had lowered its outlook on the U.S. credit rating to “negative” from “stable”.

The focus instead remains on upcoming economic data, with readings of US consumer prices and retail sales due Tuesday and Wednesday, respectively.

Meanwhile, crude oil prices eased on Monday as demand worries trumped supply concerns, amid slowing growth in the United States and China.

Brent crude futures LCOc1 for January were down 35 cents, or 0.4%, at $81.08 a barrel, while the US West Texas Intermediate (WTI) crude futures CLc1 for December were at $76.82, down 35 cents, or 0.5%.

Both benchmarks gained nearly 2% on Friday as Iraq voiced support for oil cuts by OPEC+.