Asian shares were headed for a weekly gain on Friday and Japan’s benchmark Nikkei was poised for its best week in more than four years as upbeat risk sentiment spilled over from Wall Street, while the dollar and U.S. Treasury yields held broadly steady.
Last week’s market turmoil calmed this week after a raft of U.S. economic data allayed recession fears in the world’s largest economy and pushed back expectations for aggressive U.S. rate cuts.
“Our assessment is that the market fallout from the weak early August U.S. data was disproportionate,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.
In large part, it reflected the rapid unwinding of crowded positions in some markets, he added.
“While the risk of a recession in the United States has increased a little, there are few signs of a more substantial crisis brewing.”
MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 1.3% and was set to rise more than 2% for the week, while U.S. futures extended gains following a strong overnight cash session on Wall Street.
S&P 500 futures rose 0.13%, while Nasdaq futures added 0.2%. EUROSTOXX 50 futures gained 0.17%, though FTSE futures dipped 0.06%.
Strong U.S. retail sales data and low weekly jobless claims were the latest shot in the arm for the positive risk mood, following this week’s benign inflation report that re-affirmed bets for imminent Fed rate cuts, but likely at a measured pace.
Markets are now pricing in just a 25% chance of a 50-basis-point cut by the Federal Reserve next month, down from 55% a week ago, according to the CME FedWatch tool.
“The totality of data tells us disinflation is continuing and the Fed is almost certain to cut rates in September by 25 bps,” said David Chao, Invesco’s global market strategist for Asia Pacific ex-Japan.
“But I do believe that the July inflation report diminishes the chances of a super-size cut, though this was never in the cards.”
Japan’s Nikkei jumped nearly 3%, outperforming other Asian benchmarks as Chinese blue-chips ticked marginally higher, and Hong Kong’s Hang Seng Index rose 2.1%.
The Nikkei was poised for a weekly gain of about 8%, its best performance since April 2020, following last week’s heavy losses exacerbated by the unwinding of yen-funded trades.
Friday’s gains were partly helped by a weaker yen which last stood at 148.90 per dollar, languishing near a two-week low of 149.40 hit in the previous session and some distance away from last week’s seven-month peak.
The Swiss franc, which also surged last week on the back of a flight to safety, was last at 0.8712 to the dollar and looked set to lose more than 0.6% for the week.
In other currencies, the euro struggled to break above the level of $1.10 against a firmer dollar, which was buoyed by elevated U.S. Treasury yields.
The two-year yield hovered near its highest in more than a week, to last stand at 4.0749%, while the benchmark 10-year yield steadied at 3.9035%. [US/]
In commodities, oil prices edged lower on Friday, though set for a weekly gain, as the upbeat U.S. data eased investor worries about a potential recession in the world’s top oil consumer.
Brent crude futures dipped 0.35% to $80.76 per barrel, while U.S. West Texas Intermediate crude futures eased 0.5% to $77.78 a barrel. Still, the two were eyeing a weekly gain of more than 1% each.
