Asian shares rally from 11-month lows as Treasury yields retreat

SYDNEY: Asian shares rebounded from 11-month lows on Thursday as a plunge in oil prices and softer U.S. labour data helped pull Treasury yields off 16-year peaks, although a looming U.S. payrolls report could make or break the rally.

Europe is set to extend the rally, with EUROSTOXX 50 futures rising 0.5% and FTSE futures up 0.4%. S&P 500 futures and Nasdaq futures were mostly flat.

Tracking overnight gains on Wall Street, MSCI’s broadest index of Asia-Pacific shares outside Japan rebounded 0.9%. Japan’s Nikkei climbed 1.8% as investors scooped up beaten-down shares.

Hong Kong’s Hang Seng index advanced 0.4%. China’s mainland markets remain closed for holidays.

Data in the Asia session showed South Korea’s consumer inflation accelerated for a second month in September and consumer inflation in the Philippines also picked up to the highest rate in four months, drawing a warning from its central bank that it might resume tightening.

Overnight, the rout in Treasuries took a breather after a cooler-than-expected U.S. private payrolls report and a 5% drop in oil prices offered some comfort to investors. Risk sentiment has taken a beating on the view that interest rates will stay high for longer.

Ten-year yields eased 2 basis points to 4.7123%, off 16 basis points from a fresh 16-year high of 4.8840% hit overnight.

Much will depend on U.S. non-farm payrolls data on Friday. Economists expect 170,000 jobs created in September, slowing from 187,000 in August, while the jobless rate likely ticked lower to 3.7% from 3.8%.

“I think those numbers will have to be a long way from those expectations for it to move the dial for the Fed, but numbers close to the expectations might serve to calm jitters in the Treasury market,” said Stephen Miller, an investment strategist at GSFM, a Sydney-based fund.

“Given where Treasury yields are at the moment, I think the risks are pretty evenly balanced between them on the downside and on the upside.”

The recent spike in yields has meant they have reached levels where, if sustained, would see a significant tightening in financial conditions, bolstering the case for no further Fed hikes. The CME FedTool now prices in a 23% chance of a hike in November, compared with 28% a day ago.

The U.S. dollar came off its highs and Wall Street rebounded, led by the tech heavy Nasdaq which rose more than 1% overnight.

The battered yen also got a much needed reprieve, rallying 0.4% on Thursday to 148.52 per dollar. Traders are continuing to wonder whether a sharp rebound away from the 150 level on Tuesday was due to intervention from Japanese authorities.

“It’s hard to tell if it is intervention either verbal or actual going through, or liquidation of USD/JPY longs ahead of tomorrow night’s non-farm payrolls data given U.S. yields may have topped,” said Tony Sycamore, market analyst at IG.

“USD/JPY has clearly been spooked by something and may see further downside towards Tuesday night’s 147.33 low.”

Despite the renewed strength for the U.S. dollar, analysts still see weakness for it ahead, a Reuters poll showed.

Oil prices gained on Thursday after losing a colossal 5% to where they were at the beginning of the year. Brent crude futures rose 0.7% to $86.39 per barrel and U.S. West Texas Intermediate crude futures were also up 0.6% at $84.69.

The price of gold gained 0.3% to $1,827.38 per ounce. – Reuters