Most Asian Futures Rise as Treasuries Drop; Oil Declines

Shanghai (July 28)   Most Asian index futures climbed, after Chinese shares in Hong Kong entered a bull market and U.S. Treasuries retreated ahead of a Federal Reserve meeting starting today. Crude oil fell a second day.

Futures on stock indexes in Japan, South Korea (KMA) and Hong Kong rose in recent trading, while contracts on Australia’s S&P/ASX 200 Index dropped 0.1 percent. Standard & Poor’s 500 Index futures were little changed by 7:33 a.m. in Tokyo after the benchmark U.S. gauge ended the day up less than 0.1 percent. Yields on 10-year Treasuries rose two basis points to 2.49 percent. Oil in New York dropped after slipping 0.4 percent in the previous session.

The Fed is expected to taper its bond-buying program for the sixth time at the two-day meeting, and to debate the outlook for interest rates. Housing data is due in the U.S. today, with reports on gross domestic product and payrolls also scheduled this week. Japan updates on jobs and retail trade today, with markets in Indonesia, Malaysia, the Philippines and India closed for holidays. The Hang Seng China Enterprises Index capped a 20 percent gain from this year’s low yesterday.

“The market has been very benign,” Sam Wardwell, an investment strategist at Pioneer Investment Management Inc. in Boston, said by phone. His firm manages about $250 billion. “We’re still on track and as long as wars in the rest of the world don’t upset the upper card, the second half of this year continues to look like it’s going to be a gradually improving year.”

Hong Kong

Futures on the Hang Seng Enterprises Index and contracts on the Hang Seng Index added 0.1 percent in most recent trading. The enterprises gauge, which tracks mainland Chinese stocks listed in Hong Kong, climbed 0.7 percent yesterday to the highest close since Dec. 11. It closed at 11,072.62, which was 20 percent above the 2014 low of 9,203.07 reached March 20, meeting the definition of what some traders consider a bull market.

Nikkei 225 Stock Average futures were unchanged at 15,565 on the Chicago Mercantile Exchange after jumping 0.9 percent in the previous session. Contracts traded in Osaka added 0.3 percent to 15,550 by 3 a.m. local time. Futures on the Kospi index in Seoul rose 0.3 percent in recent trading.

Japan’s jobless rate probably held at 3.5 percent in June, while retail trade shrank 0.5 percent from a year earlier, a third month of contraction, according to economists surveyed by Bloomberg.

Futures Transactions

Gains in Hong Kong and Japan helped the MSCI Asia Pacific Index up 0.3 percent yesterday to its highest close since June 2008. The regional stock measure trades at 13.6 times projected earnings for member companies, the most expensive valuation since December. The S&P 500 trades at 16.6 times estimated earnings, data compiled by Bloomberg show, while the MSCI All-Country World Index has a valuation of 15.4.

The number of transactions for futures on China’s CSI 300 Index fell yesterday to the lowest level in 10 months versus share volumes in the cash market, data compiled by Bloomberg show, indicating traders may be turning bearish after stock gains. The last two times the ratio fell this low, in September and in February 2013, the CSI 300 sank an average 8.2 percent over two months.

Markets in Indonesia are closed all week, while Malaysia resumes tomorrow after a two-day break.

Two-year Treasury yields reached the highest level in almost three weeks in New York, rising to 0.5 percent. The difference between five- and 30-year Treasuries yields narrowed to 155.49 basis points, the least since 2009, as subdued inflation supported longer maturities.

Treasury Auction

Fed policy makers will cut asset purchases by another $10 billion to $25 billion tomorrow, according to the median of 38 economists’ estimates compiled by Bloomberg. There’s a 63 percent probability the Fed will raise interest rates to at least 0.5 percent by July 2015, based on Fed funds futures, versus a 43.2 percent chance at the end of May.

The U.S. Treasury sold $29 billion of two-year notes at the highest yield in more than three years yesterday as investors bet the economy will be strong enough for the Fed to remain on pace to raise interest rates next year.

West Texas Intermediate crude fell 0.2 percent to $101.52 a barrel. Violence in Libya and Iraq isn’t affecting the flow of oil from the Middle East, with clashes between militias in Tripoli not spreading to oil-export terminals and the conflict in Iraq sparing the nation’s main oil-producing region. WTI slid 1 percent last week after U.S. government data showed that gasoline stockpiles rose to a four-month high as demand declined.

Herbalife Sinks

The S&P 500 closed at 1,978.91 after falling 0.5 percent in trading July 25. The gauge reached a record 1,987.98 July 24. S&P/Case-Schiller housing data is due today, with a report tomorrow projected to show the U.S. economy expanded 3 percent in the second quarter, after contracting 2.9 percent in the first three months of the year.

Herbalife Ltd., the nutrition company facing a U.S. probe spurred by billionaire hedge-fund manager Bill Ackman, slid more than 11 percent in extended trading after posting second-quarter profit that trailed analysts’ estimates amid falling sales volume in the Americas.

Pfizer Inc., Reynolds American Inc. and American Express Co. are among about 150 S&P 500 members reporting this week. About 78 percent of U.S. companies that have posted results this season have beaten analysts’ estimates for profit, while 66 percent exceeded sales projections, according to data compiled by Bloomberg.

Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11 percent gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.

Source: Bloomberg