Asian Shares Dip from 32-Month High, Japan Climbs as Rate Concerns Abate – Reuters

By Stella Qiu

SYDNEY (Reuters) – Asian stocks pulled back from a 32-month high on Thursday as the intense rally in Hong Kong paused, while sentiment improved as concerns about further monetary policy tightening this year diminished.

The British pound declined 0.7% to a two-week low of $1.3177, following comments from Bank of England Governor Andrew Bailey, who suggested the central bank might adopt a "more aggressive" stance on rate cuts if inflation continued to decrease. Meanwhile, other European indices narrowed earlier losses, ending with a slight decline of 0.1%.

Futures for EUROSTOXX 50 dropped 0.5%, Nasdaq futures fell 0.3%, and S&P 500 futures decreased by 0.2%.

Several Asian markets, including South Korea, Taiwan, and mainland China, were closed for the day, leading to a 1% drop in MSCI’s index of Asia-Pacific shares outside Japan, largely influenced by a 1.6% decline in Hong Kong’s benchmarks after a remarkable rise of over 30% in just three weeks, driven by a wave of Chinese stimulus aimed at reviving a struggling economy.

In contrast, Japan’s Nikkei index saw a 2% increase as newly elected Prime Minister Shigeru Ishiba announced that the country was not prepared for further interest rate hikes following a meeting with central bank governor Kazuo Ueda. Ueda reinforced a cautious approach regarding any potential rate increases.

Dovish comments from BOJ policymaker Asahi Noguchi, who emphasized the need for the bank to maintain loose monetary policy, contributed to this sentiment. The Japanese yen fell 2% overnight, reaching a one-month low of 147.24 per dollar on Thursday.

Analyst Tony Sycamore from IG noted that the current outlook suggests that rate hikes may be off the table for 2024, indicating the next tightening could be pushed to 2025. He added that dollar/yen exchanges are likely to be influenced by U.S. economic data, including promising jobs reports.

Futures markets suggest a less than 50% chance that the Bank of Japan will raise rates by 10 basis points by December, with expectations of rates rising to 0.5% by the end of next year, up from the current 0.25%.

In the U.S., Wall Street remained mostly stable, although Treasury yields ticked up after a strong private payrolls report highlighted a robust labor market, alleviating fears of a significant downturn ahead of Friday’s non-farm payrolls data.

Bonds benefitted from safe-haven flows amid escalating geopolitical tensions in the Middle East, particularly in light of recent military actions involving Israel and Hezbollah. Two-year Treasury yields were stable at 3.652%, and ten-year yields remained at 3.792%.

Market expectations now indicate a 36% chance of the Federal Reserve cutting rates by another 50 basis points in November, a decrease from nearly 60% last week, with 70 basis points of easing priced in by the end of the year.

In foreign exchange markets, the euro weakened to $1.1040, hovering just above crucial support levels. Market sentiment shifted as traders anticipated that the European Central Bank would cut rates at its upcoming meetings in October and December, spurred by comments from a senior policymaker expressing cautious optimism about inflation.

Oil prices rose as concerns grew that the ongoing conflict in the Middle East could disrupt supplies from the most significant oil-producing region, with futures increasing by 1.2% to $74.82 a barrel.

Meanwhile, gold prices remained near record highs, trading at $2,652.75 an ounce.