Nikkei leads Asia higher as yen slips; commodities on a roll

TV camera men wait for the opening of market in front of a large screen showing stock prices at the Tokyo Stock Exchange in Tokyo, Japan October 2, 2020. REUTERS/Kim Kyung-Hoon/File photo

SYDNEY  — Asian shares rallied on Thursday as U.S. rate cuts remained on the menu, even if their timing was unclear, while the yen slid against everything except the dollar and boosted Japanese stocks.

There was also action in commodities as gold reached another record, oil a five-month peak and copper a 13-month top, helping to lift shares in basic materials and energy companies.

Some of these gains were due to supply disruptions and geopolitical tensions, but they also reflect optimism about global growth given a recovery in recent factory surveys (PMI), particularly for China.

“Steady improvement in manufacturing surveys throughout last quarter point to momentum improving broadly in the coming months,” wrote analysts at JPMorgan in a note.

“The global manufacturing output PMI moved further into expansionary territory in March, reflecting largely positive results across the major economies,” they added. “Global business confidence is on the mend.”

READ: China’s manufacturing activity expanded in March

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.4 percent, though a holiday in China made for thinner trading conditions.

Tokyo’s Nikkei bounced 1.6 percent as the yen fell, with the materials, industrials, and energy sectors leading the way.

EUROSTOXX 50 futures and FTSE futures both edged up 0.1 percent. S&P 500 futures rose 0.3 percent and Nasdaq futures 0.4 percent.

Sentiment was aided by a reaffirmation from Federal Reserve Chair Jerome Powell that U.S. rates were still on course to be cut this year, though the timing was data dependent.

Pricing fewer cuts

The case for easing was underpinned by a survey of the U.S. services sector that showed its index of prices paid fell to the lowest since March 2020, offsetting a worrying rise in the survey of manufacturing released early this week.

READ: US services sector cooling; input price rise slows considerably

That also outweighed a surprisingly strong ADP report, which showed private sector jobs rose 184,000.

While this series has a patchy correlation to the official payrolls report due on Friday, it was strong enough for Goldman Sachs to revise up its forecast for payrolls by 25,000 to a solid 240,000.

Such an outcome would top the median forecast of 200,000 and could lead markets to again pare the chance of a June rate cut.

Fed fund futures have already lowered the chance of a June move to 62 percent from 74 percent a month ago.

Yet the bigger shift has been in how fast and far rates are expected to fall, with roughly 73 basis points priced in for this year compared to more than 140 basis points in January.

READ: Powell sticks with Fed’s cautious rate-cut strategy

Investors have also taken 100 basis points of easing out of 2025, so that rates are now seen ending next year around 4 percent rather than 3 percent.

That sea change has left Treasuries under water, with 10-year yields hitting a four-month high of 4.429 percent on Wednesday before easing back a little to 4.368 percent currently.

The rise in yields has been generally supportive of the dollar, though it did lose some ground following Wednesday’s U.S. services survey.

That left the euro at $1.0843, after rallying 0.6 percent overnight, while the dollar index stood at 104.21 having fallen 0.5 percent the previous session.

Japan forex intervention

While the risk of Japanese intervention kept the dollar at 151.65 yen and shy of the 152.00 barrier, other currencies were not so inhibited and the yen fell sharply elsewhere.

READ: Japan unlikely to intervene unless yen slides below 155

The euro was up at 164.44 yen, having climbed 0.7 percent on Wednesday to recover four days of losses, and the Canadian dollar reached a 16-year high at 112.31 yen.

Gold extended its sparkling run to reach a fresh record at $2,304 an ounce. The metal has climbed 13 percent since the start of February, driven in part by buying from momentum funds and commodity trading advisors (CTAs).

Oil prices have also been on a tear as Ukraine’s attacks on Russian refineries have cut fuel supply and amid concerns that the Israel-Hamas war in Gaza may spread to include Iran, possibly disrupting supplies from the Middle East.

A meeting of top ministers from the Organization of Petroleum Exporting Countries (OPEC) and its allies including Russia kept oil supply policy unchanged on Wednesday and pressed some countries to boost compliance with output cuts.

Brent added another 25 cents to $89.60 a barrel on Thursday, while U.S. crude rose 23 cents to $85.66 per barrel.