Asia shares rally as U.S. job report seen dimming chance of Sept rate hike
Asian shares rallied on Monday after last week’s weaker-than-expected U.S. jobs report prompted investors to trim expectations that the Federal Reserve would hike interest rates as early as this month.
MSCI’s broadest index of Asia-Pacific shares outside Japan extended early gains and was up 1.5 percent in afternoon trade.
Financial spreadbetters predicted the buoyant mood would extend into European markets, which caught a lift on Friday afternoon when the U.S. jobs report was released early in the U.S. session.
“The unemployment report was not weak enough to completely undermine the Fed’s hawkish bias since Jackson Hole. It was probably enough to see fence-sitters on the Federal Open Market Committee wait until December before voting to hike interest rates,” wrote analyst Jasper Lawler at CMC Markets, which expected Britain’s FTSE, Germany’s DAX and France’s CAC to open higher.
Japan’s Nikkei stock index rose 0.7 percent to its highest close since May 31. But it ended off session highs in choppy trading as the dollar slipped against the yen despite Bank of Japan Governor Haruhiko Kuroda’s signal that the BOJ stands ready to ease monetary policy further.
“One positive for the market is that the correlation between the Nikkei and the yen appears to be breaking down,” said Gavin Parry, managing director at Parry International Trading Ltd. “For the short-term, you have to be long Japan,” he said.
U.S. stock futures edged up 0.2 percent, though cash stock and bond markets will be closed on Monday for Labor Day.
Friday’s U.S. jobs report showed nonfarm payrolls rose by 151,000 jobs in August after an upwardly revised 275,000 increase in July. Economists polled by Reuters had expected a rise of 180,000.
“What matters is not whether the markets think that was a strong jobs number, but whether Fed policymakers do,” said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities in Tokyo, who noted that Fed Vice Chairman Stanley Fischer said late last month that the U.S. job market was close to full strength.
Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday that the U.S. economy appears strong enough to warrant significantly higher interest rates.
U.S. Fed Funds futures prices indicated investors were pricing in around a 20 percent chance of a September hike, and more than a 60 percent chance by the end of year.
BNY Mellon senior global markets strategist Marvin Loh expects the Fed to hold off on any rate hikes until December, when they can factor in three additional jobs reports as well as the U.S. third-quarter growth report.
“We will add that we have been fooled by the FOMC on September moves in prior years and vow not to fall into that same trap again,” Loh wrote.
Markets were also keeping watch on the two-day summit of leaders from G20 nations, in Hangzhou, China.
Chinese President Xi Jinping said at the open of the summit on Sunday that global economy was being threatened by rising protectionism and risks from highly leveraged financial markets.
The dollar fell 0.5 percent to 103.44 yen, giving back some of its gains after rising as high as 104.32 on Friday, its highest since July 29.
The BOJ’s Kuroda told a seminar on Monday that the central bank’s comprehensive review of its policies later this month would not lead to a suspension of easing.
He shrugged off growing market concerns that the bank is reaching its limits and stressed that the BOJ had room to deepen negative rates even as he acknowledged that policy had its own risks.
“There is no free lunch for any policy. That said, we should not hesitate to go ahead with (additional easing) as long as it is necessary for Japan’s economy as a whole,” Kuroda said.
The euro rose 0.2 percent to $1.1178 ahead of Thursday’s European Central Bank interest rate decision.
Most economists expect the central bank to hold policy steady, though some believe the ECB could extend its asset buying program.
The Reserve Bank of Australia will also issue a policy decision on Tuesday. All 33 economists polled by Reuters expected a steady outcome, with financial markets pricing in the smallest of chances for a cut <0#YIB:>. [AU/INT]
Crude prices inched down, paring their robust gains in the previous session amid worries over a global oil glut. [O/R]
Brent crude was down 0.1 percent at $46.79 a barrel, while U.S. crude slipped 0.2 percent to $44.35.
Both had gained 3 percent in the previous session as the dollar slipped after the employment data, making oil cheaper for investors holding other currencies.
But for the week, Brent fell 6 percent, its biggest drop in five weeks, while U.S. crude fell nearly 7 percent to mark its largest decline in eight weeks.
Source: Reuters
