Asian Shares Rise as Dollar Retreat Boosts Yen and Bonds
Asian shares experienced an uptick on Friday as investors welcomed a global rally in anticipation of significant US jobs data. Concurrently, bonds gained some relief following comments from a senior Federal Reserve official that alleviated concerns regarding rate hikes, resulting in a decline of the dollar. The dollar’s retreat has significantly propelled a rally in the yen, which has appreciated by 2.6 percent this week to trade at 155.7 per dollar, bringing it close to the 155.2 level achieved following the coordinated intervention by Tokyo and Washington in late July. Federal Reserve Governor Christopher Waller indicated that recent data pointed to indications of disinflation. He noted that should forthcoming reports support this trend, he would advocate for maintaining rates at their current level during this month’s policy meeting. Futures swiftly adjusted the probability of a rate hike this month to 50 percent, down from approximately 63 percent the previous day. Expectations have escalated in recent sessions as a global bond rout has propelled long-dated yields to multi-year highs, driven by apprehensions regarding persistent inflation, increasing government debt, and geopolitical tensions.
“Waller is pushing back against the thrust of the argument made by Warsh last week that there is little evidence that underlying inflation has moved lower,” said analysts. “We believe that Chair Warsh will deliver a hike if he advocates for it. Absent his advocacy, Governor Waller’s speech reinforces our view that the bar for data to sway the data-dependent majority to hike this month remains elevated.” In Asia, the broadest index of Asia-Pacific shares outside Japan increased by 1 percent, reflecting widespread gains on Wall Street. However, this rise was insufficient to counterbalance earlier losses, leaving the index down 0.4 percent for the week. Japan’s Nikkei gained 0.8 percent but experienced a decline of 2.7 percent this week. Chinese blue-chips experienced a rally of 1 per cent, while South Korea’s KOSPI saw an increase of 1.1 percent. Both Wall Street futures and EURO STOXX 50 futures exhibited little movement as traders prepared for the upcoming US payrolls report for August, scheduled for release later in the day. Forecasts indicate an anticipated increase of 56,000 jobs following an unexpected decline of 23,000 in the preceding month. The unemployment rate is anticipated to remain unchanged at 4.1 per cent.
Recent US economic data indicates that activity within the services sector accelerated last month, with a gauge of prices paid surging to a three-year peak. The Fed’s “Beige Book” survey indicated that economic activity has experienced a slight increase in recent weeks. Following the dovish remarks from Waller, Treasuries experienced a rally, primarily driven by the short-end, as the yield curve exhibited a bullish steepening in response to diminishing concerns regarding imminent rate increases. Two-year yields remained at 4.3381 percent, following a decline of 5 basis points overnight, distancing themselves from a 20-month high of 4.4102 percent. Ten-year yields remained relatively stable at 4.7620 percent, reflecting a decline of 3 basis points overnight, while 30-year yields stood at 5.2433 percent following a decrease of 2 basis points overnight. Investors in longer-dated bonds continue to express caution regarding inflation risks, particularly in light of the limited indications of advancement in negotiations between the US and Iran aimed at concluding the conflict and facilitating the reopening of the Strait of Hormuz. Oil prices remained close to six-week highs, as Brent crude futures increased by 7 percent this week, reaching $95.52 per barrel.
The dollar drew limited support from elevated yields and was trading at 98.96 against its major peers, following a decline of 0.6 percent overnight. It is poised for a weekly decline of 0.7 percent. The yen strengthened this week, gaining 1.8 percent overnight as investors increased their expectations for a potential rate hike by the Bank of Japan this month. Markets currently suggest a 75 percent probability of a move in September, with an increase by October fully accounted for, thereby elevating the likelihood of either a more substantial hike or consecutive tightening measures. “While we can’t rule out another round of price checks, or intervention, it could also be pre-positioning – official or speculative – in expectation of a soft non-farm payrolls tonight and a potentially hawkish BOJ meeting in a fortnight,” said Tony Sycamore. In commodity markets, gold remained at $4,470 an ounce following a 2 per cent rally overnight. It was, however, poised to conclude the week with minimal variation.
