Asian shares climb amid renewed global rate cut optimism
Equities are on course for a third week of gains, while the dollar is steady as new signs of an easing US labour market stoked optimism around interest rate cuts in 2024
10 May 2024 - 07:50
byAnkur Banerjee
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A man passes by an electronic screen displaying Japan’s Nikkei share average. Picture: REUTERS/ISSEI KATO
Singapore — Asian stocks rose on Friday, on course for a third week of gains, while the dollar was steady as fresh signs of an easing US labour market stoked optimism around interest rate cuts in 2024 ahead of next week’s crucial inflation data.
Sterling was steady at $1.2515, having touched a more than two-week low of $1.2446 on Thursday after Bank of England (BOE) paved the way for the start of rate cuts as soon as June.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.66% and was on course for a nearly 1% gain for the week, its third consecutive week of gains. Japan’s Nikkei was 0.37% higher.
China stocks were lower, with blue-chip shares down 0.28% as geopolitical concerns weighed on sentiment after a trade restriction list issued by the Biden administration and potential new China tariff.
Hong Kong’s Hang Seng index though rose 2%, having touched an eight-month high in early trading.
The risk-on mood is set to continue in Europe, with Eurostoxx 50 futures up 0.14%, German DAX futures 0.19% higher and FTSE futures up 0.45%.
Data on Thursday showed US initial claims for state unemployment benefits increased more than expected by 22,000 to a seasonally adjusted 231,000 for the week ended May 4, the labour department said.
The figures follow last week's report showing US job growth slowed more than expected in April and the increase in annual wages fell below 4.0% for the first time in nearly three years.
“After a period of remarkable strength and resilience, signs are growing that the US labour market may be starting to soften,” said Ryan Brandham, head of global capital markets, North America at Validus Risk Management.
Markets will be closely watching April US producer price index (PPI) and the consumer price index (CPI) out next week for signs that inflation has resumed its downward trend towards the Fed’s 2% target rate.
Hotter-than-expected inflation reports in April knocked back any lingering expectations of interest rate cuts in the near term, with markets now fully pricing in a rate cut only in November though there remains a chance of a cut in September.
In contrast, markets now imply a 50-50 chance of a BOE cut in June and are almost fully priced for August. They also imply an 88% chance the European Central Bank (ECB) will ease in June.
BOE governor Andrew Bailey said there could be more reductions than investors expect, the latest sign of the growing divergence between Europe and US rate outlook.
Traders expect 47 basis points (bps) of cuts this year from the Fed. In comparison, traders are pricing in 58bps of easing from the BOE this year, while expecting 72bps of cuts from the ECB.
The shifting expectations around US rates have kept the dollar adrift, with the euro holding to most of its 0.3% overnight gains. It last fetched $1.0774.
The single currency was on track for its fourth consecutive week of gains on the dollar.
The dollar index, which measures the US currency versus six peers, inched higher to 105.30.
The yen remains in the spotlight after last week’s suspected rounds of interventions from Japanese authorities totalling nearly $60bn aimed at pulling the yen off its 34-year lows of ¥106.245 to the dollar touched on April 29.
On Friday, the yen was last at ¥155.71 to the dollar, with Japanese finance minister Shunichi Suzuki repeating Tokyo’s recent warnings that it was ready to take action against disorderly currency moves.
Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management, said the Ministry of Finance wants to avoid spikes in volatility which could negatively affect domestic financial markets.
“So, like we suspected a few days ago, they will intervene if intraday moves become too large. But I don't think they'll push against a steady depreciation, like we've seen since.”
In commodities, oil prices were on the rise, with US crude up 0.68% to $79.80 per barrel and Brent at $84.38, up 0.6% on the day.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Asian shares climb amid renewed global rate cut optimism
Equities are on course for a third week of gains, while the dollar is steady as new signs of an easing US labour market stoked optimism around interest rate cuts in 2024
Singapore — Asian stocks rose on Friday, on course for a third week of gains, while the dollar was steady as fresh signs of an easing US labour market stoked optimism around interest rate cuts in 2024 ahead of next week’s crucial inflation data.
Sterling was steady at $1.2515, having touched a more than two-week low of $1.2446 on Thursday after Bank of England (BOE) paved the way for the start of rate cuts as soon as June.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.66% and was on course for a nearly 1% gain for the week, its third consecutive week of gains. Japan’s Nikkei was 0.37% higher.
China stocks were lower, with blue-chip shares down 0.28% as geopolitical concerns weighed on sentiment after a trade restriction list issued by the Biden administration and potential new China tariff.
Hong Kong’s Hang Seng index though rose 2%, having touched an eight-month high in early trading.
The risk-on mood is set to continue in Europe, with Eurostoxx 50 futures up 0.14%, German DAX futures 0.19% higher and FTSE futures up 0.45%.
Data on Thursday showed US initial claims for state unemployment benefits increased more than expected by 22,000 to a seasonally adjusted 231,000 for the week ended May 4, the labour department said.
The figures follow last week's report showing US job growth slowed more than expected in April and the increase in annual wages fell below 4.0% for the first time in nearly three years.
“After a period of remarkable strength and resilience, signs are growing that the US labour market may be starting to soften,” said Ryan Brandham, head of global capital markets, North America at Validus Risk Management.
Markets will be closely watching April US producer price index (PPI) and the consumer price index (CPI) out next week for signs that inflation has resumed its downward trend towards the Fed’s 2% target rate.
Hotter-than-expected inflation reports in April knocked back any lingering expectations of interest rate cuts in the near term, with markets now fully pricing in a rate cut only in November though there remains a chance of a cut in September.
In contrast, markets now imply a 50-50 chance of a BOE cut in June and are almost fully priced for August. They also imply an 88% chance the European Central Bank (ECB) will ease in June.
BOE governor Andrew Bailey said there could be more reductions than investors expect, the latest sign of the growing divergence between Europe and US rate outlook.
Traders expect 47 basis points (bps) of cuts this year from the Fed. In comparison, traders are pricing in 58bps of easing from the BOE this year, while expecting 72bps of cuts from the ECB.
The shifting expectations around US rates have kept the dollar adrift, with the euro holding to most of its 0.3% overnight gains. It last fetched $1.0774.
The single currency was on track for its fourth consecutive week of gains on the dollar.
The dollar index, which measures the US currency versus six peers, inched higher to 105.30.
The yen remains in the spotlight after last week’s suspected rounds of interventions from Japanese authorities totalling nearly $60bn aimed at pulling the yen off its 34-year lows of ¥106.245 to the dollar touched on April 29.
On Friday, the yen was last at ¥155.71 to the dollar, with Japanese finance minister Shunichi Suzuki repeating Tokyo’s recent warnings that it was ready to take action against disorderly currency moves.
Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management, said the Ministry of Finance wants to avoid spikes in volatility which could negatively affect domestic financial markets.
“So, like we suspected a few days ago, they will intervene if intraday moves become too large. But I don't think they'll push against a steady depreciation, like we've seen since.”
In commodities, oil prices were on the rise, with US crude up 0.68% to $79.80 per barrel and Brent at $84.38, up 0.6% on the day.
Spot gold added 0.3% to $2,353.95/oz.
Reuters
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