Asia shares strike seven-month high ahead of US jobs data

A man uses a smartphone in front of an electronic screen displaying Japan’s Nikkei share average outside a brokerage in Tokyo, Japan March 4, 2024. REUTERS/Kim Kyung-Hoon/File Photo

SINGAPORE  – Asian stocks rose to a seven-month peak on Friday, tracking global peers as investors cheered the prospect of an imminent rate easing cycle led by major central banks, keeping the dollar and Treasury yields under pressure.

Japan remained an outlier as expectations mount that the Bank of Japan (BOJ) could finally exit negative interest rates this month. That lit a fire under the yen and sent domestic bond yields rising.

MSCI’s broadest index of Asia-Pacific shares outside Japan peaked at 538.47 points in early Asia trade, its strongest level since August. It was last 1 percent higher, and was eyeing a weekly gain of nearly 2 percent.

Global stock indexes had in the previous session rallied to record highs after the European Central Bank (ECB) laid the ground for a potential rate cut in June, while Federal Reserve Chair Jerome Powell struck a similar tone on the path of U.S. rates.

READ: ECB lays ground for June rate cut as inflation falls

“Very seductive words when it is uttered by the Fed Chair, it appears, in the context of confidence to initiate rate cuts,” said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank. “Markets were certainly not shy in construing this as an open invitation to pivot-type rallies.”

U.S. Treasury yield

The two-year U.S. Treasury yield, which typically reflects near-term rate expectations, fell to a one-month low of 4.499 percent on Friday as traders added to bets of imminent Fed rate cuts.

The benchmark 10-year yield was last at 4.0923 percent.

Focus now turns to the closely watched nonfarm payrolls report due later on Friday for further clues on the U.S. rate outlook, particularly after January’s blowout jobs report which stunned markets.

Friday’s labour market data comes ahead of a reading on U.S. inflation next week.

“If we do get that hot nonfarm payrolls data tonight, followed by a hotter-than-expected CPI, it could unravel very, very quickly across equity markets, across assets including gold, bitcoin and then to currency markets,” said Tony Sycamore, a market analyst at IG.

“It’s something to be aware of. It’s not my base case, but it’s certainly a risk.”

In the meantime, expectations of an imminent Fed easing cycle kept the dollar broadly weaker and it hit a roughly two-month low on the euro on Friday.

The single currency was last at $1.0948, after peaking at $1.0956 earlier in the session. Sterling similarly rose to an over two-month high of $1.2820.

Bank of Japan pivot

The yen hit a one-month high against the greenback on Friday at 147.54 per dollar, helped by recent commentary from BOJ officials which fueled speculation that the central bank could soon move away from its ultra-easy monetary policy stance.

The Japanese currency was poised for its best week since December with a nearly 1.5 percent rise.

READ: Japan sees growing momentum towards March end to negative rates

BOJ governor Kazuo Ueda and board member Junko Nakagawa said on Thursday the Japanese economy was moving towards the central bank’s 2 percent inflation target, while the country’s largest trade union group said the average wage hike demand hit 5.85 percent for this year, topping 5 percent for the first time in 30 years.

The BOJ has long set broad-based and sustained wage increases as a prerequisite for a stimulus exit.

Reflecting expectations of a near-term BOJ pivot, the two-year Japanese government bond (JGB) yield rose to its highest since April 2011 at 0.2 percent, while the 10-year JGB yield was up 1.5 basis points at 0.74 percent.

“We’ve had enough hawkish rhetoric of late… from BOJ members that they’re telling us what’s likely to happen,” said IG’s Sycamore. “They have everything now in place whereby they can deliver that exit from negative interest rate policy.”

While a stronger yen is typically bad for Japanese stocks, the Nikkei nonetheless rode global equities higher on Friday and was last up 0.67 percent.

China hopes

Elsewhere in Asia, Chinese stocks started the session on a strong footing, with blue chips rising 0.4 percent and the Shanghai Composite Index gaining 0.25 percent. Both indexes, however, were set to end the week little changed.

Hong Kong’s Hang Seng Index jumped more than 1 percent.

Data on Thursday showed China’s export and import growth in the January-February period beat forecasts, though that did little to turn battered sentiment around, as investors were left underwhelmed by the lack of details for strong stimulus from Beijing to shore up the country’s economic recovery at this week’s annual parliament session.

“China’s 2024 National People’s Congress met expectations with respect to key policy actions, but disappointed in terms of sentiment – market participants (were) clearly hopeful the new year would bring a more aggressive policy style,” said Elliot Clarke, head of international economics at Westpac.

READ: Gold extends rally to record as Powell hints at rate cut in 2024

In commodity markets, Brent rose 31 cents to $83.27 a barrel, while U.S. crude gained 40 cents to $79.33 per barrel.

Spot gold edged 0.1 percent lower to $2,157 an ounce after touching an all-time high of $2,164.09 in the previous session, as the prospect of an imminent Fed easing cycle boosted the appeal for the non-yielding yellow metal.