Asian shares track US futures higher, bonds hold gains

SYDNEY: Asian shares tracked Wall Street futures higher on Friday as Amazon provided some welcome earnings relief, while bonds were able to sustain a rally amid signs U.S. inflation was easing.

All eyes were on U.S. data later in the session that may show core inflation growing 0.3% in September on a monthly basis, with the annual rate expected to edge lower to 3.7% from 3.9% a month earlier.

Europe was set for a stronger open, with EUROSTOXX 50 futures rising 0.3% and FTSE futures up 0.2%. The European Central Bank held rates unchanged overnight, giving markets some comfort at a time of geopolitical turmoil.

S&P 500 futures gained 0.6% while Nasdaq futures rallied 0.9%, driven by a 5% jump in Amazon shares in after-hours trading. In a statement after the U.S. close, the tech giant predicted higher holiday season sales and a stabilisation in its cloud business.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan bounced 0.9% on Friday after hitting a fresh 11-month low a day ago. It is, however, on track for a weekly loss of 0.8%, weighed down by high bond yields, the conflict in the Middle East and mixed U.S. earnings.

There are growing concerns the Israel-Hamas conflict could spread more widely in the Middle East, leading oil prices to jump more than $1 a barrel on Friday.

Two U.S. fighter jets struck weapons and ammunition facilities in Syria on Friday in retaliation for attacks on U.S. forces by Iranian-backed militia.

Tokyo’s Nikkei rose 1.2%, but was still down 0.8% for the week.

China’s blue chips gained 1%, and Hong Kong’s Hang Seng index surged 1%, after data showed profits at China’s industrial firms extended gains for a second month, adding to signs of stabilisation in the world’s second-largest economy.

Mainland property developers listed in Hong Kong surged 2.8%, and tech giants rose 1.8%.

“The ride for shares is likely to remain volatile in the near term,” said Shane Oliver, chief economist at AMP.

“But several things should help shares by year end – seasonality will become positive in the next two months; inflation is likely to continue to fall which should take pressure off central banks allowing them to starting easing next year; and any recession is likely to be mild.”

U.S. data overnight confirmed a resilient economy with inflation easing, feeding soft landing hopes. The U.S. economy grew almost 5% in the third quarter, while underlying inflation subsided considerably during the quarter.

That fuelled hopes the closely watched U.S. personal consumption expenditures (PCE) for September – the Fed’s preferred gauge of inflation – are likely to surprise on the downside as well when released later on Friday.

Goldman Sachs lowered its forecasts for monthly core PCE by 1 basis point (bp) to 0.27% and the headline PCE estimate by 1 bp to 0.33%.

CME FedTool showed that any probability for a rate hike in November has been wiped out and traders trimmed bets for a December hike to 19.5%, compared with 29.3% a day earlier. Rate cuts next year are seen at about 70 basis points.

The benchmark yield on 10-year Treasury notes was flat at 4.8558% after easing 10 basis points overnight. It breached 5% on Monday for the first time in 16 years, lifting borrowing costs around the globe.

The recent spike in yields have kept the dollar buoyant, especially against the Japanese yen.

The yen hit a fresh one-year low of 150.77 per dollar overnight and was last at 150.17. It was not far off the three-decade low of 151.94 it touched in October last year that led Japanese authorities to intervene in the currency market.

Speculation that the Bank of Japan could raise an existing yield cap at its meeting next week is also keeping traders on edge.

Gold prices was 0.1% higher at $1,987.49 per ounce, not far off a 2-1/2 month high of $1,997.09 hit earlier this month.

Oil prices regained ground after tumbling more than $2 a barrel in the previous session. They are, however, set for the first weekly drop in three weeks.

Brent crude futures climbed 1.5% to $89.26 a barrel while U.S. West Texas Intermediate futures were at $84.52 a barrel, up 1.6%. – Reuters