Asia-Pacific Equities Reach Highest Level Since Mid-February. Asia-Pacific equities experienced a significant rise on Friday, reaching their highest level since mid-February. This surge was influenced by a rally on Wall Street the previous night, with market expectations solidifying that the Federal Reserve would not increase interest rates the following week.
Japanese and Australian bond yields followed the downward trend of U.S. Treasuries, and the dollar struggled to recover from a two-week low.
Asia-Pacific Shares and Japanese Nikkei Lead the Gains
The MSCI broadest index of Asia-Pacific shares recorded a 0.6% increase, briefly reaching its strongest level since February 16. The rise was primarily driven by a 2% jump in Japan’s Nikkei, which rebounded powerfully after experiencing a significant decline from its 33-year high in the previous session.
Chinese Stocks Lag Behind
Chinese stocks performed relatively poorly compared to other markets in the region. Hong Kong’s Hang Seng saw a more modest increase of 0.26%. Mainland blue chips remained nearly flat, struggling due to a 2.3% decline in property shares. Despite speculation about potential stimulus measures from Beijing, which have yet to materialize, the property sector had soared 7.3% over the past week.
Wall Street’s Gains Led by Nasdaq and S&P 500
The gains on Wall Street were led by the tech-heavy Nasdaq, which surged 1.27%. The broader S&P 500 also experienced an increase of 0.62%. However, e-mini U.S. equity futures in Asia indicated a slightly lower restart of about 0.1% for each of the indexes.
Market Bets for Fed Rate Increase
Traders currently estimate a 73% chance that the Federal Reserve will keep interest rates steady on June 14, compared to a 27% probability of a quarter-point increase. However, the market anticipates an increase to be highly likely by the July 26 decision, with the probability set at around 80%.
Support for a Pause in Rate Hikes
The likelihood of a pause in rate hikes was supported by overnight data showing a surge in the number of Americans filing new jobless claims to a level not seen in over 1.5 years. Nevertheless, some analysts caution against complacency, pointing to surprise rate increases at the Bank of Canada and the Reserve Bank of Australia earlier in the week.
Analysts’ Views on Potential Rate Hike
Some analysts, like Tony Sycamore from IG Markets in Sydney, believe that there should be at least a 50% probability priced in for a rate hike. While acknowledging Federal Reserve Chair Jerome Powell’s comments as more supportive of holding rates rather than hiking, Sycamore highlights the significant developments that have occurred since Powell’s last speech. Sycamore cites the increase in core PCE inflation and robust non-farm payroll gains as factors that may influence Powell’s decision.
Yields and Dollar Performance
Two-year Treasury yields, which are highly sensitive to monetary policy expectations, remained relatively stable at around 4.53% in Tokyo after declining by 3 basis points at the close of the New York session. The 10-year yield inched up to 3.73% after tumbling 7 basis points overnight.
The U.S. dollar index, which measures the currency against a basket of six major peers, rebounded by 0.09% to 103.41, but still remained close to the low of 103.29 reached on Thursday, the lowest level since May 23.
The dollar gained 0.3% against the yen, reaching 139.355 yen after briefly dropping to a one-week low of 138.765. The euro remained relatively unchanged at $1.0777, slightly below Thursday’s two-week high of $1.0787.
Turkish Lira Hits Record Low, Cryptocurrency Market Reacts
The Turkish lira continued its decline, reaching a new record low of 23.54 per dollar. This occurred despite President Tayyip Erdogan appointing a U.S. banker as the central bank chief, which was seen as a signal for a return to more orthodox monetary policy.
Erdogan had previously reinstated former finance minister Mehmet Simsek, who emphasized the principles of transparency, consistency, accountability, and predictability in the economy.
However, the market remained skeptical, with investors choosing to react immediately and seek more evidence before fully believing in the positive change.
Cryptocurrency Market Reacts to Binance Announcement
The leading cryptocurrency, Bitcoin, experienced a brief dip of 0.83% before recovering and stabilizing around $26,484.
This came after Binance, the world’s largest cryptocurrency exchange, announced the suspension of dollar deposits and upcoming restrictions on fiat withdrawal channels due to increased regulatory scrutiny from the U.S. Securities and Exchange Commission (SEC).
Crude Oil Prices Affected by Potential U.S.-Iran Nuclear Deal
Crude oil prices remained under pressure on Friday following reports that the United States and Iran were nearing a nuclear deal.
Speculation around the deal, which allegedly included the possibility of an additional 1 million barrels per day of Iranian production, caused a decline in West Texas Intermediate (WTI) crude.
It dropped by $3.50 to just below $69 at one point on Thursday. WTI futures closed 58 cents weaker than the previous day at $70.71, while Brent crude futures were down 57 cents at $75.39.
Asia-Pacific Equities Reach Highest Level Since Mid-February.
Asian-Pacific equities reached their highest level since mid-February, driven by a rally on Wall Street and expectations of the Federal Reserve delaying a rate increase.
Japanese and Australian bond yields followed the downward trend of U.S. Treasuries, and the dollar struggled to recover from a two-week low. While Chinese stocks lagged behind, Hong Kong’s Hang Seng saw a more modest increase.
Traders anticipated a pause in rate hikes based on data showing a surge in new jobless claims. However, analysts differed in their views on the likelihood of a rate increase, considering recent economic developments.
The performance of yields and the dollar remained relatively stable. Asia-Pacific Equities Reach Highest Level Since Mid-February.
The Turkish lira reached a record low despite efforts to restore confidence in the economy. The cryptocurrency market reacted to Binance’s announcement of restrictions on fiat transactions. Crude oil prices were affected by speculation surrounding a potential U.S.-Iran nuclear deal.
