Shares get a lift in Asia as lower US rates are baked in

CNA

a day ago

SYDNEY :Share markets found some much needed support in Asia on Monday as the heightened prospect of lower borrowing costs helped soothe concerns about the U.S. economy, though the long-term credibility of U.S. policy remained in doubt.
A buy-the-dip mentality led to a bounce in Wall Street and European stock futures, and allowed the dollar to stabilise after Friday's U.S. payrolls-induced retreat.
Treasuries ran into some profit-taking after their huge gains, but fund futures still imply an 85 per cent chance the Federal Reserve will cut rates in September and ease by 100 basis points or more by this time next year.
The prospect of a shift in rates was the only silver lining to a dire payrolls report in which downward revisions left the three-month average of jobs growth at 35,000 from 231,000 at the start of the year.
"The report brings payroll growth closer in line with big data indicators of job gains and the broader growth dataset, both of which have slowed significantly in recent months," said analysts at Goldman Sachs.
"Taken together, the economic data confirm our view that the U.S. economy is growing at a below-potential pace."
Neither did the reaction of President Donald Trump instil confidence, as the firing of the head of Labor Statistics threatened the credibility of U.S. economic data.
Likewise, news that Trump would get to fill a governorship position at the Federal Reserve early added to worries about the politicisation of interest rate policy.
Analysts assume the appointee will be loyal to Trump alone, though the president did grudgingly concede that Fed Chair Jerome Powell would probably see out his term.
"It opens the prospect of broader support on the Fed Board for lower rates sooner rather than later," said Ray Attrill, head of FX research at NAB.
"Fed credibility, and the veracity of the statistics on which they base their policy decisions, are both now under the spotlight."
Markets have essentially already eased for the Fed, with two-year Treasury yields down almost 25 basis points on Friday in the biggest one-day drop since August last year.
DOLLAR DENTED
The drop in global yields seemed to help equities, with S&P 500 futures and Nasdaq futures both bouncing 0.4 per cent. EUROSTOXX 50 futures gained 0.6 per cent, while FTSE futures rose 0.5 per cent and DAX futures 0.4 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan firmed 0.7 per cent, aided by a 1.1 per cent rally in South Korean stocks.
Japan's Nikkei fell 1.4 per cent, in part weighed by Friday's rebound in the yen, while Chinese blue chips were flat.
Wall Street has taken comfort in an upbeat results season. About two-thirds of S&P 500 companies have reported, and 63 per cent have beaten forecasts. Earnings growth is estimated at 9.8 per cent, up from 5.8 per cent at the start of July.
Companies reporting this week include Disney, McDonald's, Caterpillar and some of the large pharmaceutical groups.
The dismal U.S. jobs data did put a dent in the dollar's crown of exceptionalism, snuffing out what had been a promising rally for the currency.
The dollar was a shade firmer at 147.79 yen, having shed an eye-watering 2.3 per cent on Friday, while the euro held at $1.1574 after bouncing 1.5 per cent on Friday.
The dollar index was pinned at 98.801, having tumbled from last week's top of 100.250.
Sterling was restrained at $1.3281 as markets are 87 per cent priced for the Bank of England to cut rates by a quarter point at a meeting on Thursday.
The BoE board is expected to remain split on easing, while markets still favour two further cuts by the middle of next year.
In commodity markets, gold was little changed at $3,357 an ounce, having climbed more than 2 per cent on Friday.
Oil prices extended their latest slide as OPEC+ agreed to another large rise in output for September, which completely reverses last year's cuts of 2.2 million barrels per day.