Asian stocks firm, China sets cautious growth target

  • Nikkei at three-month high, S&P 500 futures company
  • Chinese stocks tumble after Beijing sets 5% growth target
  • Markets brace for Powell, BOJ, BOC and RBA meetings
  • February payrolls a major test for U.S. rate expectations

SYDNEY, March 6 (Reuters) – Asian stocks edged higher on Monday as bond markets held their breath ahead of an update on the outlook for U.S. rates from the world’s most powerful central banker, and a jobs report who could decide if the next rise should be oversized.

There was some disappointment that Beijing chose to cut its growth outlook to a 5% target, rather than the market-favored 5.5% and above, but the recent run of real data has been strong enough to keep investors optimistic.

Chinese blue chips (.CSI300) slipped 0.5%, after gaining 1.7% last week. MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) was still up 0.7%.

Japan’s Nikkei (.N225) climbed 1.2% to a three-month high, while South Korean stocks (.KS11) gained 1.0%, helped by a weaker inflation reading .

EUROSTOXX 50 futures firmed 0.5%, while FTSE futures were flat. S&P 500 futures gained 0.2% and Nasdaq futures 0.4%, after rebounding on Friday as bond yields edged down slightly.

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Yields on 10-year Treasuries stood at 3.94%, after last week’s high of 4.09% proved tempting enough to entice buyers.

Markets have resigned themselves to more rate hikes from the Federal Reserve, but hope it will stick to quarter-point moves rather than return to half-point hikes .

San Francisco Fed President Mary Daly reiterated on Saturday that rates should rise, but set the bar high to move to half-point increases.

Futures contracts imply a 72% chance that the Fed will go 25 basis points at its March 22 meeting.

All of this sets the stage for Fed Chairman Jerome Powell’s testimony to Congress on Tuesday and Wednesday, where he will no doubt be asked about the need for bigger hikes.

Much, however, could hinge on what the February payrolls report reveals on Friday. The forecast is centered on a more modest increase of 200,000 after January’s jump of 517,000, but risks are on the upside.

And that will be followed by the February CPI report on March 14.

Kuroda bows out

“Powell’s testimony comes ahead of the payroll and inflation numbers, so he’s likely to avoid going down a political road,” said NatWest Markets analyst Jan Nevruzi.

“Payslips are due on the last day that Fed officials can publicly discuss monetary policy, but the CPI will be released during the blackout period,” he added. “If we find ourselves in a situation where the jobs and inflation numbers present a contradictory view, the outcome of the Fed meeting could become even more difficult to predict.”

The Fed is not alone in warning of further tightening.

In an interview published over the weekend, European Central Bank President Christine Lagarde said it was “very likely” that they would raise interest rates by 50 basis points this month and that the bank still had work to do on inflation.

Australia’s central bank is expected to raise rates by 25 basis points on Tuesday, while the Bank of Canada is expected to pause after raising rates a record 425 basis points in 10 months.

Friday marks the last policy meeting for Bank of Japan Governor Haruhiko Kuroda before Kazuo Ueda takes the reins in April, and all eyes are on the fate of his stance on yield curve control (YCC ).

“No changes are expected, but we shouldn’t completely rule out the possibility that Kuroda might come out with a bang via the BoJ announcing another adjustment to the 0% YCC tolerance band,” NAB analysts noted in a note.

The BOJ shook markets in December when it unexpectedly widened the permitted trading range for 10-year bond yields to between -50 and +50 basis points.

So far, Ueda has appeared dovish on the policy outlook which has kept the yen on a softer trend. The dollar was last at 135.61 yen after hitting a three-month high of 137.10 last week.

The euro held at $1.0643, just off its recent seven-week low at $1.0533, while the dollar index was slightly lower at 104.430.

Friday’s pullback in bond yields helped gold recover ground and it was trading at $1,855 an ounce.

Oil prices fell as investors may be disappointed that China has not set more ambitious growth targets.

Brent crude fell 62 cents to $85.21 a barrel, while U.S. crude fell 59 cents to $79.09 a barrel.

Reporting by Wayne Cole; Editing by Shri Navaratnam

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