By Rae Wee
SINGAPORE (Reuters) – Asian shares headed for a weekly gain on Friday and Japan’s benchmark Nikkei index was on track for its best week in more than four years as optimistic risk sentiment spilled over from Wall Street while the dollar and U.S. Treasury yields remained broadly stable.
Last week’s market turmoil calmed down this week after a flood of U.S. economic data allayed recession fears in the world’s largest economy and pushed back expectations of aggressive U.S. interest rate cuts.
“In our view, the impact of the weak US data in early August on the market was disproportionate,” said Jonas Goltermann, deputy chief economist for markets at Capital Economics.
This was largely due to the rapid unwinding of crowded positions in some markets, he added.
“Although the risk of a recession in the US has increased somewhat, there are few signs that a major crisis is brewing.”
MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 1.3 percent and is expected to gain more than 2 percent for the week, while U.S. futures extended gains after a strong cash session overnight on Wall Street.
S&P 500 futures rose 0.13%, while Nasdaq futures gained 0.2%. EUROSTOXX 50 futures gained 0.17%, while FTSE futures fell 0.06%.
Strong US retail data and low weekly unemployment figures were the latest boost to positive risk sentiment after this week’s mild inflation report reinforced speculation of an imminent, but likely moderate, rate cut by the Fed.
According to the CME FedWatch tool, the markets are currently calculating only a 25 percent chance that the Federal Reserve will cut interest rates by 50 basis points next month. A week ago, the chance was 55 percent.
“The totality of the data tells us that disinflation is continuing and the Fed will almost certainly cut rates by 25 basis points in September,” said David Chao, Invesco’s global market strategist for Asia Pacific excluding Japan.
“However, I believe that July’s inflation report reduces the chances of a drastic cut, although this was never on the cards.”
Japan’s Nikkei rose nearly 3 percent, outperforming other Asian benchmarks, while Chinese blue chips rose marginally and Hong Kong’s Hang Seng Index rose 2.1 percent.
The Nikkei was set for a weekly gain of about 8%, its best performance since April 2020, after sharp losses last week that were exacerbated by the unwinding of yen-funded trades.
Friday’s gains were partly due to the weaker yen, which last traded at 148.90 against the dollar, close to its two-week low of 149.40 hit in the previous session and some way off last week’s seven-month high.
The Swiss franc, which also rose sharply last week due to the flight to safe haven assets, was last at 0.8712 against the dollar and is expected to decline by more than 0.6 percent over the course of the week.
Elsewhere, the euro struggled to break the $1.10 mark against a stronger dollar, supported by higher U.S. Treasury yields.
The yield on the two-year note hovered near its highest level in over a week, last at 4.0749%, while the yield on the benchmark 10-year note stabilized at 3.9035%. (US/)
In terms of commodities, oil prices fell slightly on Friday but were expected to rise on a weekly basis as positive US data eased investor concerns about a possible recession in the world’s largest oil consumer.
Brent crude futures fell 0.35% to $80.76 a barrel, while U.S. West Texas Intermediate crude futures slipped 0.5% to $77.78 a barrel, but both were still eyeing weekly gains of more than 1% each. (O/R)
The spot price of gold fell 0.13% to $2,452.77 per ounce. (GOL/)
(Edited by Shri Navaratnam and Clarence Fernandez)
