Asian stocks at 27-month high

Sydney — Asia stocks hit 27-month highs on Thursday as softer US data narrowed the odds on a September rate cut there, boosting bonds and commodities while dragging on the dollar.

A holiday in the US made for thin trading, as investors waited to see just how large a majority the Labour Party might get in the UK election.

Markets are well prepared for a change given opinion polls have for months put the centre-left party on course for a landslide victory over the Conservatives.

“The Labour Party has relatively modest tax and spending plans, with the overall goal of shrinking the UK's large budget deficit,” CBA analysts said.

“The Labour government’s policies will also move the UK back towards closer alignment to the EU.”

Across the English Channel, polls suggested the National Rally (RN) would not win a majority of seats in Sunday’s French election as mainstream parties moved to block the far right.

FTSE futures nudged up 0.1%, while sterling held at $1.2740. Eurostoxx 50 futures were little changed.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.9% to reach its highest since April 2022.

Japan’s Nikkei climbed 0.9% to within spitting distance of its March peak, while the broader Topix clinched record highs.

Taiwan’s main index also struck a record led by the tech sector and Taiwan Semiconductor Manufacturing Company (TSMC) which cleared 1,000 Taiwanese dollars for the first time.

S&P 500 futures and Nasdaq futures were steady after reaching another record overnight in the wake of soft economic data.

The US ISM measure of services activity surprised by sliding to its lowest since mid-2020, with employment notably weak ahead of the June payrolls report due on Friday.

Analysts cautioned the series was contradicted by strength in the PMI survey of services, but did note that price measures in both surveys pointed to easing inflation.

A run of subdued data mean Citi’s US economic surprise index has sunk to -47.5, the lowest since August 2022. Meanwhile, the closely watched Atlanta Fed’s GDPNow estimate fell to just 1.5% from 1.7%.

That should be music to the ears of the Federal Reserve, with minutes of its last meeting showing committee members wanted more evidence of a cooling economy before cutting rates.

At the time of that meeting, the GDPNow growth estimate was running around 3% annualised.

“Reading through the minutes from only three weeks ago, it is a good reminder of how quickly the activity outlook has deteriorated,” said Paul Ashworth, chief North America economist at Capital Economics.

Markets quickly lifted the probability of a September rate cut to 74%, from 65%, while pricing in 47 basis points of easing for this year.

Yields on 10-year treasuries dropped eight basis points in response to 4.355%.

With the US economy now seemingly less exceptional, the dollar dropped across the board. The euro was up at $1.0785, and away from its recent low of $1.0666, while the dollar index hit its lowest in three weeks.

The yen remained out in the cold, hitting multiyear lows on a host of currencies as investors continued to favour carry trades. The dollar stood at ¥161.53 after striking a 38-year top of ¥161.96 overnight.

The drop in the dollar was a boon for commodities, with gold rallying to $2,358/oz, from $2,318 at the start of the week.

Oil prices eased a touch, having gained overnight when a surprisingly large decline in US crude stocks pointed to firmer demand as the US driving season gets under way.

Brent dipped 47c to $86.87 a barrel, while US crude fell 53c to $83.35 a barrel.

Reuters