Asian shares rise amid hope that rates have peaked
Equities gain ground and bond yields fall as investors bet on US rate cut by March
Tokyo — Asia-Pacific equities gained on Wednesday as bets firmed for a peak in interest rates among major central banks globally, as bond yields continued to decline.
Japanese government bond yields dipped to the lowest since mid-August as US treasury yields hovered close to a three-month trough.
Meanwhile, crude oil sank to a nearly five-month low, while bullion held steady after dropping back from an all-time high. Bitcoin traded just below $44,000 following its surge this week to a 20-month peak.
US 10-year treasury yields held steady at around 4.186% after touching 4.163% on Tuesday as cooling labour market data cemented views that the Federal Reserve is done hiking rates, with bets on a first cut coming by March now at around 64%, according to the CME Group’s FedWatch tool.
Benchmark JGBs yields slid in sympathy, reaching the lowest since Aug. 16 at 0.62%.
Lower borrowing costs boosted equity markets, with big tech a particular beneficiary.
Japan’s Nikkei surged 1.6%, rebounding from Tuesday’s mid-November low, while Australia’s stock benchmark jumped 1.4% and South Korea’s Kopsi added 0.56%.
US stock futures also pointed higher, with the tech-heavy Nasdaq indicated up 0.4% following a 0.31% advance overnight for the cash index. S&P 500 futures rose 0.26%, after the cash index ended Tuesday flat.
Overnight, US jobs figures came in softer than expected, but coupled with robust services data, added to the narrative for a soft landing for the economy as the Fed shifts to monetary easing, analysts said.
The “sell-off in yields across the curve is strong evidence of the intense focus the market has on this week's labour market data”, with the ADP employment report due later on Wednesday and non-farm payrolls on Friday, said IG analyst Tony Sycamore.
For the Nasdaq, “although we remain bullish into year-end, we are not contemplating opening fresh longs at these levels”, Sycamore said, recommending buying on dips instead.
Chinese equities underperformed on Wednesday, with sentiment fragile after ratings agency Moody’s slapped a downgrade warning on China’s credit rating.
Hong Kong’s Hang Seng rose 0.41%, supported mainly by a rally in tech, with a sector subindex climbing about 1%.
Mainland Chinese blue chips were flat.
With markets all but certain the Fed’s next move is a cut, dovish rhetoric from European Central Bank officials overnight and the Reserve Bank of Australia’s decision to hold policy steady on Tuesday have stoked bets for a peak in rates globally. The Bank of Canada is widely expected to adopt a wait-and-see attitude later on Wednesday as well.
That has supported the US currency’s rebound from last week’s nearly four-month low versus major peers, with the dollar index steady at around 103.95 on Wednesday, compared with a trough of 102.46 a week ago.
“The US dollar weakened when the Federal Reserve looked like they were cutting while other central banks were holding tight,” said James Kniveton, a senior corporate FX dealer at Convera in Melbourne.
“Now that looks to be changing, and other central banks are following the Fed’s lead.”
The dollar added 0.08% to ¥147.265, while the euro was little changed at $1.07935.
Gold was flat just below $2,020, catching its breath following its surge to a record $2,135.40 on Monday.
Bitcoin was steady at around $43,850 after pushing as high as $44,490 overnight, buoyed by both Fed rate cut expectations and speculation U.S regulators will soon approve exchange-traded spot bitcoin funds.
Crude eased further on Wednesday, weighed down by the worsening demand outlook from China, and doubts about the impact of Opec cuts.
Brent crude futures fell 8c, or 0.1%, to $77.12 a barrel, while US WTI crude futures were down 13 cents, or 0.2%, at $72.19 a barrel. Both benchmarks closed at their lowest since July 6 in the previous session.
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