(Bloomberg) — Asian shares rose and the yen strengthened early Monday as investors took positions ahead of a Federal Reserve cut in U.S. interest rates starting next month.
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Stocks in Australia and Korea rose on Chairman Jerome Powell’s speech in Jackson Hole when he said the “time has come” to move towards monetary easing. The Fed’s dovish stance also lifted the yen against the dollar, as Asia-based funds added to existing short positions on the dollar. Japanese stocks fell, while U.S. stock contracts held steady.
Buying ports in response to rising tensions in the Middle East has been an additional boost to currencies. The region is bracing for an extended conflagration after Israeli warplanes flew over southern Lebanon and took out thousands of Hezbollah rocket launchers in what was called a pre-emptive strike. Oil rose 0.7% early Monday.
The prospect that the US will finally ease borrowing costs is shaping trading in financial markets. The yield on 10-year U.S. Treasury bonds fell two basis points to 3.79% in Asian trading.
“There has to be risk,” said Chamath De Silva, head of fixed income at Betashares Holdings in Sydney. “Powell has confirmed that we will soon enter an easing cycle and that the battle against inflation is over, so I expect a bit of a rally with both stocks and bonds performing well.”
Some Fed watchers indicated there were devils in the details of Powell’s speech. While he acknowledged recent progress on inflation and saw the economy growing at a “solid pace,” it was his emphasis on the “cooling labor market” that caught the attention of many market observers. In short, it was seen as an indication that the Fed will do everything it can to avoid a pronounced slowdown.
“The market should be happy with this speech, as it was not aggressive in any way, greenlighting 25 basis points of interest rate cuts – and leaving the door open for even bigger cuts if necessary,” said Chris Zaccarelli. Independent Advisor Alliance.
Swap traders on Friday had priced in a 102 basis point easing for the year, meaning a cut at every remaining policy meeting through December, including one major cut of 50 basis points. The rally in government bonds on Friday was led by shorter maturities, with two-year yields falling below 4%.
Gold was little changed on Monday, after rising as much as 1.4% in the previous session following Powell’s speech, and remains within reach of a new all-time high.
Main events this week:
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China’s medium-term loans, Monday
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Industrial production in Singapore, Monday
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US Durable Goods, Monday
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Chinese industrial gains, Tuesday
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Germany’s GDP, Tuesday
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Hong Kong trading, Tuesday
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CPI Australia, Wednesday,
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Nvidia Corp. earnings figures, Wednesday
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US GDP, first jobless claims Thursday
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US personal income, expenses, PCE price data, Friday
Some of the major moves in the markets:
Stocks
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Futures on the S&P 500 were little changed at 9:20 a.m. Tokyo time
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Hang Seng futures rose 0.6%
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Japan’s Topix fell 0.8%
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Australia’s S&P/ASX 200 rose 0.4%
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Euro Stoxx 50 futures rose 0.4%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1193
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The Japanese yen rose 0.4% to 143.81 per dollar
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The offshore yuan was little changed at 7.1116 per dollar
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The Australian dollar was little changed at $0.6790
Cryptocurrencies
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Bitcoin was little changed at $64,215.67
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Ether fell 0.7% to $2,751.14
Bonds
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The yield on ten-year government bonds fell by two basis points to 3.78%
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The Japanese ten-year yield rose by three basis points to 0.900%
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The Australian ten-year yield fell by five basis points to 3.87%
Raw materials
This story was produced with the help of Bloomberg Automation.
–With help from Georgina McKay.
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