Asian shares rose on Friday as investors embraced a global rally before crucial US jobs data, while bonds found some much needed relief after a top Federal Reserve official cooled rate hike fears and dragged the dollar lower.
The dollar’s retreat turbocharged a rally in the yen, which has gained 2.6 per cent this week to trade at 155.7 a dollar, putting it within striking distance of the 155.2 level reached after joint intervention by Tokyo and Washington in late July.
In remarks for a Reuters NEXT Newsmaker event, Federal Reserve Governor Christopher Waller said that recent data suggested some signs of disinflation and that, if upcoming reports reinforced that trend, he would favour holding rates steady at this month’s policy meeting.
Futures were quick to scale back the chance of a rate hike this month to just 50 per cent, from about 63 per cent a day ago. Those expectations had surged in recent sessions as a global bond rout drove long-dated yields to multi-year highs, fuelled by concerns over stubborn inflation, swelling 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 at JPMorgan in a note.
“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, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.0 per cent, tracking broad gains on Wall Street, but that was not enough to offset earlier losses with the index still down 0.4 per cent for the week.
Japan’s Nikkei gained 0.8 per cent but was down 2.7 per cent this week. Chinese blue-chips rallied 1.0 per cent and South Korea’s KOSPI increased 1.1 per cent.
Both Wall Street futures and EURO STOXX 50 futures were flat as traders braced for the US payrolls report for August due later in the day. Forecasts are centred on a rise of 56,000 jobs after a shock fall of 23,000 the previous month. The unemployment rate is expected to hold steady at 4.1 per cent.
US economic data overnight showed activity in the services sector picked up pace in August with a measure of prices paid jumping to a three-year high. The Fed’s “Beige Book” survey also showed economic activity edged up in recent weeks.
After the dovish comments from Waller, Treasuries rallied, led by the short-end, as the yield curve bull steepened on fading fears of imminent rate hikes. Two-year yields held at 4.3381 per cent, after falling 5 basis points overnight to move away from a 20-month peak of 4.4102 per cent.
Ten-year yields were little changed at 4.7620 per cent, having dropped 3 basis points overnight, while 30-year yields were at 5.2433 per cent after a two bps fall overnight.
Investors in longer-dated bonds remain wary of inflation risks amid few signs of progress between the US and Iran to end the war and reopen the Strait of Hormuz. Oil prices held near six-week highs, with Brent crude futures up 7.0 per cent this week to $US95.52 ($A132.58) a barrel.
The dollar drew scant support from higher yields and was fetching 98.96 against its major peers, after skidding 0.6 per cent overnight. It is set for a weekly drop of 0.7 per cent.
That helped the yen to build up on its gains this week after jumping 1.8 per cent overnight as investors ramped up bets on a Bank of Japan rate hike this month. Markets now imply a 75 per cent chance of a September move, while a hike by October is fully priced in, raising the prospect of either a larger increase or back-to-back tightening.
“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, analyst at IG.
In commodity markets, gold held at $US4,470 ($A6,205) an ounce after rallying 2.0 per cent overnight. It was, however, set to end the week little changed.
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