Asian shares hit two-week high on prospects for Fed pause

SINGAPORE: Asian equities rose on Wednesday for a third straight day to their highest in two weeks, while the dollar wobbled as weak U.S. labour data bolstered bets that the Federal Reserve was likely done with its interest rate hikes.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose as much as 1% to touch its highest since Aug. 14, before easing to a gain of 0.53%. The index though is down about 6% so far in August and set for its worst monthly performance since February.

Futures indicated the exuberant mood was set to continue in Europe. The Eurostoxx 50 futures rose 0.39%, German DAX futures were up 0.29% and FTSE futures were up 0.31%.

Inflation reports from Germany and Spain due later in the day will test investors’ risk appetite and set the stage for euro zone consumer price data on Thursday.

Overnight, Wall Street ended sharply higher, while Treasury yields slid to three-week lows after data showed U.S. job openings dropped to the lowest in nearly 2-1/2 years in July, signalling easing labour market pressures.

“‘Bad news is good news,’ as the data supported bets for a sooner end of the Fed’s hiking cycle despite the recent hawkish rhetoric of Fed Chair Powell,” Tina Teng, markets analyst at CMC Markets, said in a note.

With the Fed highlighting that the interest rate path will be heavily dependent on data, traders are tweaking their bets based on the latest indicators.

Markets are pricing in an 89% chance of the Fed standing pat at its meeting next month, the CME FedWatch tool showed, and are now pricing in a 50% chance of another pause at the November meeting compared with a 38% chance a day earlier.

A much clearer economic picture will likely be revealed later in the week when U.S. payrolls and personal consumption expenditure reports are due.

China shares have gained this week following the announcement of measures to lift investor confidence, including halving the stock trading stamp duty, loosening margin loan rules, and putting the brakes on new listings.

After rising at Wednesday’s open, China’s blue-chip CSI 300 Index eased 0.19%. Hong Kong’s Hang Seng Index was up 0.50%.

Analysts see a need for more action from Chinese authorities to sustain the rally. “It will take more resolute policy measures and a sustainable recovery in earnings in order for the rally to last,” Carlos Casanova, senior economist for Asia at UBP, said.

Investors’ focus will be on PMI data from China later this week that will show the state of the economy, while geopolitical issues have also moved into the spotlight.

China defended its business practices after U.S. Commerce Secretary Gina Raimondo said American firms had told her the country had become “uninvestible”, highlighting how many global investors were turning away from assets in the world’s second-largest economy.

U.S. Treasury yields were stable in Asian hours. The two-year yield, which typically moves in step with interest rate expectations, was up 3.3 basis points at 4.923%, easing away from the three-week low of 4.871% it touched on Tuesday.

Against a basket of currencies, the dollar inched up 0.077% to 103.63 after slipping nearly 0.4% on Tuesday.

The yen weakened 0.23% to 146.24 per dollar and remained at levels that last year led Japanese authorities to intervene in the currency market.

The Australian dollar was mostly flat after a steep dive earlier in the day when data showed that Australian consumer price inflation slowed to a 17-month low in July, signalling that interest rates might not have to rise again. The Aussie last bought $0.6478.

U.S. crude rose 0.47% to $81.54 per barrel and Brent was at $85.74, up 0.29% on the day. Both benchmarks rallied more than a dollar a barrel on Tuesday on a soft dollar.

Traders will be closely watching cocoa prices on Wednesday after the London cocoa futures on ICE rose to a 46-year high on Tuesday, buoyed by tightening supplies.

Top cryptocurrency bitcoin eased 1% to $27,454 after rising more than 6% on Tuesday. A federal appeals court ruled on Tuesday that the U.S. securities regulator was wrong to reject an application from Grayscale Investments to create a spot bitcoin exchange-traded fund. – Reuter s