Asian Stocks Set for a Muted Open; Curve Flattens: Markets Wrap

(Bloomberg) -- Asian stocks are set for a muted open on Tuesday, signaling fading investor applause for the U.S.-China trade truce. A portion of the Treasury yield curve inverted for the first time in more than a decade.

Futures in Japan were little changed and pointed to modest losses in Hong Kong. Australian shares slipped. Earlier, the S&P 500 Index closed higher on the trade news, while the dollar weakened and oil gained. In the Treasury market, three-year yields climbed above five-year ones, showing that traders are pricing in the end of the Federal Reserve’s interest-rate hike campaign. Ten-year yields fell back below 3 percent.

Investors are mulling the prospects for a year-end equity rally, with prospects for renewed U.S.-China trade talks calming tensions after a tumultuous period for risk assets. Treasury Secretary Steven Mnuchin said he’s hopeful for a “real agreement” that includes structural changes in China’s economic policies, while White House economic adviser Larry Kudlow said the two countries are “pretty close” to an agreement on stopping intellectual property theft.

"It’s easy to see the trade deal as a half empty -- that it’s just a postponement and that they’ll work together but that there really isn’t any kind of resolution,” said Jeff Kleintop, chief global investment strategist at Schwab Center for Financial Research. “But I think you can see it as a half glass full. ”

Concerns remain about the impact of Fed tightening against a backdrop of slowing global growth. While the more closely watched part of the yield curve -- the gap between two-year and 10-year yields -- remains upwardly sloped, it flattened to just 15 basis points Monday. With yield-curve inversions having been a reliable indicator of past recessions, the move casts a shadow over the outlook for 2019.

Elsewhere, oil surged the most in more than five months on Monday as Saudi Arabia and Russia extended a cooperation pact. The pound erased a gain as the threat of a vote to bring down British Prime Minister Theresa May’s government looms should Parliament reject her Brexit deal.

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Coming Up

• U.S. financial markets are set to close Wednesday for a national day of mourning to honor former President George H.W. Bush. Fed Chairman Jerome Powell’s testimony to Congress scheduled for Wednesday has been canceled.
• Friday brings the U.S. monthly employment report for November.
• China November trade data are due on Saturday.

These are the main moves in markets:

Stocks

• Nikkei 225 futures were little changed.
• Hang Seng futures fell 0.6 percent overnight.
• The S&P/ASX 200 fell 0.6 percent.
• The S&P 500 gained 1.1 percent while the Nasdaq Composite Index rose 1.5 percent.
• The Stoxx Europe 600 rose 1 percent.
• The MSCI Emerging Market Index climbed 2.2 percent.

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 percent Monday.
• The euro was little changed Tuesday morning at $1.1353.
• The British pound was at $1.2725.
• The Japanese yen was flat Tuesday morning at 113.63 per dollar.

Bonds

• The yield on benchmark 10-year Treasuries fell two basis points to 2.97 percent Monday.
• Germany’s 10-year yield fell less than one basis point to 0.31 percent.

Commodities

• West Texas Intermediate crude rose 0.3 percent to $53.26 a barrel.
• Gold rose 0.1 percent at $1,231.47.
• LME copper climbed 1.6 percent to $6,295 per metric ton Monday, after reaching the highest in almost 10 weeks on the biggest increase in a month.

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