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Asian Markets Reflect Mixed Sentiments Amid Global Economic Developments
SYDNEY (Reuters) – On Thursday, Japanese equities surged, while the yen experienced a decline as concerns over potential tightening of monetary policy diminished for the remainder of the year. Meanwhile, the remarkable rally in Hong Kong’s stock market paused, raising questions about its sustainability.
The euro suffered significant losses as traders increased their expectations that the European Central Bank (ECB) would lower interest rates during its scheduled meetings in October and December. This shift in sentiment was partially influenced by comments from ECB board member Isabel Schnabel, who indicated a belief that inflation would return to targeted levels.
The MSCI index, which tracks shares across the Asia-Pacific, excluding Japan, dropped by 1%. In contrast, the Japanese market climbed by 2.2%, benefiting from a depreciated yen that favored exporters in the region.
The dollar advanced an additional 0.3%, reaching 146.84 yen, marking its highest level in a month. This increase followed a 2% rise overnight after Japan’s newly-elected Prime Minister Shigeru Ishiba indicated in discussions with central bank governor Kazuo Ueda that the nation was not prepared for further interest rate hikes.
Governor Ueda emphasized the need for careful deliberation before making any decisions regarding rate increases. Similarly, BOJ policymaker Asahi Noguchi reiterated the importance of maintaining an accommodative monetary environment for the time being.
Analyst Tony Sycamore from IG remarked, “Overall, this presents a unified positive outlook for the dollar/yen pair, suggesting that rate hikes are unlikely in 2024, with the next tightening expected to be pushed out to 2025.” He further noted that movements in the dollar/yen trading pair would likely hinge on U.S. economic data, drawing attention to recent robust U.S. jobs reports.
Market futures reflected a less than 50% probability of a 10 basis point hike by the BOJ by December, with projections indicating that rates may only increase to 0.5% by the end of the next year, up from the current 0.25%.
In other regional updates, while China’s mainland markets were closed for a holiday, Hong Kong’s index fell by 2.5%, retreating from a remarkable 6.2% increase the previous day. Despite this decline, the benchmark remains elevated by approximately 30% over the past three weeks, driven by significant stimulus actions from the Chinese government aimed at reviving its sluggish economy.
On Wall Street, trading remained relatively stable, but Treasury yields experienced an uptick following a robust private payrolls report that underscored the strength of the U.S. labor market, alleviating fears about a disappointing non-farm payrolls release expected on Friday.
Safe-haven investments, particularly in bonds, saw increased demand amidst intensifying geopolitical tensions in the Middle East. Recent reports indicated that eight Israeli soldiers died in clashes in southern Lebanon, escalating military operations against Hezbollah.
Two-year Treasury yields remained steady at 3.648%, with ten-year yields also holding at 3.79%. Expectations around Federal Reserve actions showed a 36% chance of a 50 basis point cut in November, a decrease from nearly 60% from the prior week, with a cumulative 70 basis points anticipated by year-end.
In the currency markets, the euro traded at $1.1040, hovering just above crucial support at $1.10 and close to a daily low of $1.10325, a level not encountered since early September.
Oil prices climbed amid concerns that the escalating conflict in the Middle East could disrupt oil supplies from one of the world’s primary producing regions, with futures rising by 1.1% to $74.68 a barrel.
Gold prices remained near an all-time high, trading around $2,655.90 per ounce, reflecting ongoing investor interest in safe-haven assets amid prevailing uncertainties.
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