Asian Equities Rise on Weak US Labor Data, Dollar Wobbles
Asian equities extended their gains on Wednesday for a third consecutive day, reaching their highest level in two weeks. Concurrently, the value of the dollar fluctuated as weak U.S. labor data fueled speculation that the Federal Reserve is likely finished with interest rate hikes.
The MSCI Asia-Pacific shares outside of Japan rose by as much as 1% in early trading, marking its highest level since August 14. However, it later settled for a gain of 0.53%. Despite the recent gains, the index has still experienced a decline of approximately 6% in August, heading toward its worst monthly performance since February.
Early indications suggest that the optimistic sentiment in Asia will continue in Europe. Futures for the Eurostoxx 50 rose by 0.39%, while German DAX futures gained 0.29% and FTSE futures increased by 0.31%.
Investor risk appetite will be tested later in the day with the release of inflation reports from Germany and Spain. Furthermore, the stage will be set for euro zone consumer price data to be released on Thursday.
After Wall Street closed on a high note, with Treasury yields hitting three-week lows, data showed that U.S. job openings fell to their lowest point in nearly two and a half years in July. As a result, traders are becoming more confident that the Fed will put an end to its interest rate hikes.
Following the Fed’s emphasis on data dependence, the latest indicators prompted traders to adjust their bets. They are now pricing in an 89% chance that the Fed will maintain its position at the next meeting, according to the CME FedWatch tool. Additionally, traders are now pricing in a 50% chance of another pause at the November meeting, compared to 38% the day before.
A clearer economic picture is expected to emerge later in the week with the release of U.S. payrolls and personal consumption expenditure reports.
China’s shares have experienced gains this week due to measures implemented to boost investor confidence, including halving the stock trading stamp duty and easing margin loan rules.
While China’s blue-chip CSI 300 Index saw a slight dip of 0.19% at the open on Wednesday, Hong Kong’s Hang Seng Index rose by 0.50%.
Analysts believe that further action from Chinese authorities is necessary to sustain the rally. Carlos Casanova, senior economist for Asia at UBP, stated, “It will take more resolute policy measures and a sustainable recovery in earnings in order for the rally to last.”
Investors will focus on PMI data from China later this week to gauge the state of the economy. Furthermore, geopolitical issues surrounding China have also come into focus, as the country defended its business practices after U.S. Commerce Secretary Gina Raimondo referred to it as “uninvestible.”
In Asian trading, U.S. Treasury yields remained stable. The two-year yield, which typically moves in tandem with interest rate expectations, increased by 3.3 basis points to 4.923%. This marked a departure from the three-week low of 4.871% reached on Tuesday.
The dollar slightly rose by 0.077% against a basket of currencies to 103.63. This follows a decrease of nearly 0.4% on Tuesday.
The weakening yen, which stood at 146.24 per dollar, is approaching levels seen last year when Japanese authorities intervened in the currency market.
The Australian dollar experienced minimal movement following a significant drop earlier in the day. This drop resulted from data showing that Australian consumer price inflation slowed to a 17-month low in July, suggesting that interest rates may not need to rise further. The Australian dollar was last seen at $0.6478.
Crude oil prices increased, with U.S. crude rising by 0.47% to $81.54 per barrel and Brent crude reaching $85.74, a gain of 0.29% on the day. Both benchmarks saw an increase of over one dollar per barrel on Tuesday due to a weak dollar.
Cocoa prices will be monitored closely on Wednesday after London cocoa futures on ICE reached a 46-year high. This surge was driven by tightening supplies.
Meanwhile, Bitcoin, the leading cryptocurrency, saw a slight decline of 1% to $27,454 after experiencing a 6% increase on Tuesday. On Tuesday, a federal appeals court ruled that the U.S. Securities and Exchange Commission was mistaken in rejecting Grayscale Investments’ application to create a spot bitcoin exchange-traded fund.
By Ankur Banerjee; Edited by Edmund Klamann