Asian stocks erase gains in run up to quarter-end: Markets wrap

Asian stocks erased earlier gains amid cautious trading before quarter-end and the release of the Federal Reserve’s preferred inflation measure later this week.

MSCI’s Asian equity gauge was little changed following a two-day decline. US stock futures were flat after the S&P 500 Index fell Monday. South Korea’s Kospi outperformed, supported by local chip shares.

The offshore yuan strengthened for a second day after China’s central bank reinforced its support for the currency. The yen swung between gains and losses after dropping to a four-month low against the dollar last week.

“At the end of first quarter, we see caution emerging especially in year-to-date top-performing markets Taiwan and Japan where investors are searching for new catalysts,” said Kieran Calder, head of equity research for Asia at Union Bancaire Privee.

There are plenty of reasons for investors to be cautious given the number of risk events in coming days. The US government will publish its personal consumption expenditures price index on Good Friday when local markets will be closed. Fed Chair Jerome Powell is due to speak on the same day.

There’s also uncertainty surrounding the yen, with Japan’s Finance Minister Shunichi Suzuki saying Tuesday the government will take appropriate steps against excessive currency moves, without ruling out any measures.

Dollar-yen is likely to stay above 150, according to Mitul Kotecha, head of foreign exchange and emerging market macro strategy Asia at Barclays Bank Plc in Singapore.

“Intervention will really depend on when we get through big levels,” he said on Bloomberg Television. “You’d imagine that once we start breaking through big levels such as 155 or 160 for instance, you’d see more of an aggressive stance from the Japanese authorities.”

Treasuries edged higher in Asian trade, while the dollar weakened against most of its Group-of-10 peers.

China’s central bank reinforced its support for the yuan by strengthening its daily reference rate for the managed currency by the most since January. The People’s Bank of China shifted its fixing by 0.1% with traders still on tenterhooks after the yuan sank to its weakest since November on Friday.

Pullback ‘overdue’

A sense of prudence has prevailed among investors this week as concern about a disconnect between earnings expectations and share prices have grown. Morgan Stanley and JPMorgan Chase & Co. strategists were the latest to warn it’ll be hard to justify lofty valuations if profit acceleration fails to materialize.

“We continue to see sentiment as stretched and think a US equity market pullback is overdue,” said Lori Calvasina at RBC Capital Markets.

In a sign of how overheated the stock market has been, the S&P 500 finished last week 14% above its 200-day moving average. Still, the combination of healthy US economic data, expectations the Fed will cut rates and optimism about artificial intelligence have all driven the S&P 500 up almost 10% this year.

In other markets, oil was little changed after the biggest gain in a week, with OPEC+ set to affirm its policy of production cuts amid tensions in the Middle East and Russia. Gold hovered near a record high.

Key events this week:

ECB chief economist Philip Lane participates in event in Dublin, Tuesday
US durable goods, Conference Board consumer confidence, Tuesday
China industrial profits, Wednesday
Bank of England issues financial policy committee minutes, Wednesday
Eurozone economic confidence, consumer confidence, Wednesday
Fed Governor Christopher Waller speaks, Wednesday
UK GDP revision, Thursday
US University of Michigan consumer sentiment, initial jobless claims, GDP, Thursday
Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
US personal income and spending, PCE deflator, Friday
Good Friday. Exchanges closed in US and many other countries in observance of holiday. US federal government is open.
San Francisco Fed President Mary Daly speaks, Friday
Fed Chair Jerome Powell speaks, Friday