(Bloomberg) — Asian stocks rose after economic data supported the case for Federal Reserve interest rate cuts, and the yen rebounded from its lowest level against the dollar since 1986.
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The MSCI Asia-Pacific index hit its highest point in more than two years, with technology stocks contributing most to the rally. Japan’s Topix hit a record intraday high and stocks in South Korea, Taiwan and Australia also advanced. U.S. futures contracts were little changed after the S&P 500 and Nasdaq 100 hit records in a shortened session ahead of a U.S. holiday.
The yen strengthened after touching its lowest level since 1986 against the dollar in the previous session. Speculation persists that the Bank of Japan will tighten monetary policy only gradually. A gauge of the dollar weakened for a third straight session.
Global stocks are on track for their longest weekly winning streak since March, helped by a slew of weak U.S. economic data that has put the idea of cutting rates in September back on the table. On Wednesday, reports showed the U.S. services sector contracted at the fastest pace in four years, while the labor market showed further signs of weakening.
“Weaker Treasury yields and a weaker US dollar on dovish rate bets may support risk sentiment across the region,” said Jun Rong Yeap, market strategist at IG Asia Pte. “Slowing US growth prospects” make a September rate cut “more likely than unlikely,” he said.
Minutes from the Federal Reserve’s June policy meeting showed officials were awaiting evidence that inflation is cooling and were divided over how long to keep rates elevated. Swap traders projected nearly two rate cuts in 2024, the first in November, though they raised bets on a reduction in September.
“Bad news is good news,” said Fawad Razaqzada of City Index and Forex.com. “This is how risk assets reacted to Wednesday’s US data.”
Ten-year Treasury yields held steady after falling seven basis points to 4.36% in the previous session, weighing on the dollar strength index. Most Asian currencies advanced against the greenback, led by the Thai baht and Taiwanese dollar.
Elsewhere in Asia, Chinese electric car brands kept their share of the European EV market falling in May. Automakers such as BYD Co. accounted for 8.7% of total EV sales, roughly the same as a year ago, as Chinese companies push their European counterparts with new, affordable models.
Meanwhile, Britons were preparing to go to the polls in Thursday’s general election. The pound was little changed in early Asian trading. Elsewhere, traders were watching for signs of whether President Joe Biden will drop out of the US presidential race. Wall Street has begun shifting money into and out of the dollar, Treasury bonds and other assets that would be hit if rival Donald Trump returns to power.
“The U.K. and French elections will be more of a temporary concern for markets,” Adrian Zuercher, chief investment officer at UBS AG Private Banking, told Bloomberg Radio. But “Trump is a different story, particularly the trade war situation; we’ll have to see how aggressive he will be on tariffs and that could weigh a bit more” on markets, he said.
Investors will be keeping a close eye on the US jobs report due out on Friday. Economists are expecting a rise of 190,000 non-farm payrolls in June (down from the previous month) and an unemployment rate that will remain at 4%.
“Given other evidence of a cooling economic backdrop, the payrolls report could become increasingly critical for the Fed as it searches for a rationale for signaling rate easing,” said Quincy Krosby of LPL Financial.
Chicago Federal Reserve President Austan Goolsbee said there is still a lot of data the U.S. central bank needs to see before it gains confidence to cut interest rates.
In commodities, gold advanced for a second straight day after breaking out of a tight trading range that lasted several days. Iron ore futures rose to the highest level in almost a month on optimism about improving demand from China.
Key events this week:
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UK General Election, Thursday
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Thursday, holiday for the United States Independence Day
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Eurozone retail sales, Friday
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US employment report, Friday
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John Williams of the Federal Reserve speaks on Friday
Some of the main movements in the markets:
Stocks
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S&P 500 futures were little changed as of 1:03 p.m. Tokyo time.
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Nasdaq 100 futures were little changed
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Japan’s Topix index rose 0.7%
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Australia’s S&P/ASX 200 index rose 1.1%
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Hong Kong’s Hang Seng has hardly changed
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The Shanghai Composite fell 0.4%
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Euro Stoxx 50 futures were little changed
Coins
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Bloomberg Dollar Spot Index little changed
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The euro was unchanged at $1.0786.
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The Japanese yen rose 0.1 percent to 161.52 per dollar.
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The offshore yuan was unchanged at 7.2994 per dollar.
CRYPTOCURRENCIES
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Bitcoin fell 0.8% to $59,047.63
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Ether fell 0.5% to $3,239.31
Captivity
Raw Materials
This story was produced with assistance from Bloomberg Automation.
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