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Asia shares rise on rate cut bets; RBA seen turning hawkish
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People walk in front of an electronic board displaying the latest reading of the Nikkei index of the Tokyo Stock Exchange on a street in Tokyo on April 26, 2024. (AFP/Kazuhiro Nogi)
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sian shares made 15-month highs on Tuesday on renewed confidence of US interest rate cuts, while traders waited on a policy meeting in Australia later in the day and had a close eye on a falling yen.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.3 percent in early trade. Hong Kong shares traded marginally lower, having ridden a wave of heavy buying from mainland investors to lift the Hang Seng index more than 14 percent higher in a 10-day winning streak, its longest since 2018.
Japan's Nikkei gained 1.3 percent and S&P 500 futures were steady after the cash index logged a 1 percent rise overnight.
The mood was underpinned by last week's softer-than-expected US jobs data and remarks from Federal Reserve Chair Jerome Powell reiterating that the next move in rates will be lower.
"[Powell] said that he is confident policy is restrictive and that if progress on inflation stalled, the [Fed] would hold off on cutting, implying a high bar to hiking," said Goldman Sachs economist David Mericle.
He also said, in a note to clients, that the US hiring rate and other measures of employment growth intentions were soft and the weakest part of labor market data.
Treasuries, which rallied on Friday's jobs figures, traded steady in New York overnight and 10-year yields held at 4.49 percent in Tokyo on Tuesday. Interest rates markets price at least one US rate cut this year, in November.
Demand will be tested at a $58 billion three-year note auction on Tuesday, which is followed by $42 billion in 10-year sales on Wednesday and $25 billion of 30-year sales on Thursday.
Expectations of falling rates weighed on the dollar, except against the yen as Japanese rates are not expected to move too far above zero this year, leaving a wide gap.
The dollar rose 0.6 percent on the yen on Monday and a further 0.2 percent to 154.17 yen on Tuesday, keeping markets on edge as to whether Japanese authorities may step in again. Traders estimate Japan spent almost $60 billion defending the yen last week.
RBA WATCH
The Reserve Bank of Australia (RBA) is widely expected to leave rates on hold at its policy meeting later on Tuesday, but focus will be on whether the tone or outlook shifts to explicitly include the possibility of hikes, following an inflation surprise.
The Australian dollar was steady at $0.6637 in morning trade. Swaps market pricing implies a near even chance of a rate hike later this year in Australia.
"Markets are expecting a more hawkish tone [...] along with upgraded near term inflation forecasts, with some debate around whether the bank reinstates a tightening bias," said Westpac's head of foreign exchange strategy, Richard Franulovich.
Sterling, at $1.2564, and the euro at $1.0770, held small overnight gains against the dollar.
In commodity trade, oil was a tad firmer, with Brent crude futures up 0.3 percent to $83.58 a barrel with a ceasefire deal in the Middle East proving elusive. Gold rose overnight and was steady at $2,325 an ounce on Tuesday.
Wheat WN24, corn CN24 and soybean SN24 futures have surged to multi-month highs on worries about unfavourable weather in Russia – where it has been frosty and dry – and Brazil, where there are floods.
Iron ore futures have rallied on clues that China's Politburo is planning more support measures for the beleaguered property sector. Benchmark June iron ore SZZFM4 on the Singapore Exchange has risen almost 25 percent in a month.
German factory orders are the highlight of the European calendar on Tuesday. Disney reports earnings.
Australia's ANZ Bank posted a 7 percent profit drop and shares fell 2.3 percent, despite the announcement of a buyback.
