Positive risk sentiment from Wall Street flowed over into Asia markets, which were headed for a weeklong rise on Friday. The dollar and U.S. Treasury yields held firm, while Japan’s benchmark Nikkei was on track for its best week in more than four years.
The market turbulence of the previous week has given way to calmer conditions this week as a plethora of U.S. economic data dispelled concerns about a recession in the greatest economy in the world and tempered hopes of a swift reduction in interest rates.
“We assess that the market fallout from the weak early August U.S. data was disproportionate and in large part reflected the rapid unwind of crowded positions in some markets,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.
“While the risk of a recession in the U.S. has increased a little, there are few signs of a more substantial crisis brewing.”
The broadest MSCI Asia-Pacific index outside of Japan saw early trading gains of 0.34%, and it was expected to rise 1.3% for the week. Meanwhile, U.S. futures continued to rise after a robust Wall Street overnight cash session.
Nasdaq futures gained 0.17% while S&P 500 futures increased by 0.09%.
The latest boost to the optimistic risk attitude came from strong U.S. retail sales data and low weekly jobless claims. Earlier this week, a benign inflation report confirmed forecasts for impending Fed rate cuts, albeit probably at a controlled pace.
According to the CME FedWatch tool, markets are now pricing in just a 25% likelihood of a 50 basis point decrease from the Federal Reserve next month, down from 55% a week ago.
“The totality of data tells us disinflation is continuing and the Fed is almost certain to cut rates in September by 25bps,” 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.”
The Nikkei in Japan rose 2.7% after getting off to a great start.
The Nikkei was on track for a weekly rebound of 7.6%, its best result since April 2020, after suffering significant losses the previous week that were compounded by the unwinding of yen-funded carry transactions.
The yen’s decline, which has left it hovering around the two-week low of 149.40 reached in the previous session and well below the seven-month peak last week, contributed to Friday’s gains.
The Swiss franc, which saw a similar increase in value last week due to a flight to safety, was barely changed at 0.8716 to the US dollar and appeared to be headed for a 0.7% weekly loss.
In comparison to other currencies, the euro found it difficult to overcome the $1.10 mark against a stronger dollar that was supported by higher U.S. Treasury yields.
The benchmark 10-year yield remained stable at 3.9112%, while the two-year yield was close to reaching a peak of more than one week ago, at 4.0846%. [US/]
Although oil prices were expected to rise this week due to positive U.S. economic statistics allaying investor concerns about a possible recession in the world’s largest oil consumer, they instead declined slightly on Friday.
U.S. West Texas Intermediate crude prices decreased 0.28% to $77.94 per barrel, while Brent crude futures were down 0.19% to $80.88 per barrel. Nevertheless, they both aimed for a weekly gain of over 1%.
An ounce of spot gold increased by 0.07% to $2,457.79.
