(Bloomberg) — Japanese assets took the spotlight in Asia on Thursday. The nation’s shares led gains in the region after US data boosted odds of a Federal Reserve interest-rate cut next week, while a sale of its 30-year government bonds drew the strongest demand since 2019.
The Topix and Nikkei 225 rose more than 1.7% each versus a gain of 0.5% for MSCI Inc.’s broader gauge of Asian equities. Indexes in South Korea and Taiwan snapped a two-day advance. US stock futures were steady after the S&P 500 climbed 0.3% overnight, while Bitcoin hovered around $93,000 after a two-day rally.
Data on Wednesday showed US companies shed payrolls in November by the most since early 2023, reinforcing concerns about a more pronounced labor market weakening. Swaps pricing indicated rising expectations for a December cut Wednesday, with traders assigning more than a 90% chance to a 25-basis-point reduction.
“Unlike many other markets in Asia, Japan is more sensitive to developments around Fed rate-cut expectations, partly because the Fed may set the pace for the Bank of Japan via the FX channel” said Frederic Neumann, chief Asia economist at HSBC Holdings Plc. “A strengthening conviction over Fed rate cuts, by easing pressure on the yen, could offer more runway for the BOJ to remain accommodative for longer.”
Japan’s 30-year bonds gained following the auction result, which came after a sale of 10-year notes earlier in the week also drew firm demand. Together, the results have offered some relief to the market that has seen yields surge due to renewed fiscal concerns and on bets for a potential rate hike at the Dec. 19 BOJ policy decision.
What Bloomberg’s Strategists Say…
“JGB investors seem to have found the yield level they love for 30-year bonds, with a huge 4.04 bid-to-cover ratio. That is the highest demand since 2019, with the low price well above the pre-sale forecast, which is another positive signal. Moreover, Nomura was the biggest buyer — typically a sign of long-term investors getting involved.”
— Mark Cranfield, Markets Live strategist. Click here for the full analysis.
Meanwhile in Australia, bond yields rose to the highest level this year amid growing speculation the central bank will switch back to raising rates to curb inflation.
In currency markets, a gauge of the dollar was steady after dropping 0.4% in the previous session, when US treasuries climbed across the curve, pushing two-year yields down to around 3.48%. The Indian rupee fell to a record low against the dollar as sentiment remained weak amid delays in securing a trade deal with the US.
Separately, China set its daily reference rate for the yuan at a level that was significantly weaker than estimates, suggesting the central bank is aiming to limit gains in the managed currency which is inching close to a keenly watched level of 7 per dollar.
Tech Drags
Cyclical stocks such as industrials and financials were among the top contributors to gains for the MSCI Asia Pacific Index on Thursday. While its moves this week have been small, the regional gauge is on course for a third straight session daily advance. It jumped 2.7% last week, the most since early October.
“The relief over the US November ADP employment data and growing hopes for the Fed’s rate cut next week seem to be contributing to a better sentiment for APAC equity markets,” said Homin Lee, a senior macro strategist at Lombard Odier Singapore.
In commodities, silver fell but continued to trade near an all-time high on the reinforced bets of a Fed cut. Gold edged lower. Oil held a modest gain as investors weighed the outlook for a ceasefire in Ukraine and the fallout from tensions between the US and Venezuela.
Trade and geopolitics were also on investors’ radar. French President Emmanuel Macron and Chinese leader Xi Jinping met in Beijing on Thursday, where they would discuss a range of issues including economic ties, trade tensions, Taiwan and the war in Ukraine. Commerce Secretary Howard Lutnick said that the US is expecting a large investment pledge from Taiwan in trade talks.
Fed Outlook
Despite the apparent confidence among investors, US policymakers have been torn as to whether they’ll cut rates for a third straight meeting as they attempt to balance the slowdown in the job market with still-elevated inflation.
Data on Wednesday showed US services activity expanded at a slightly faster pace, while a measure of prices paid dropped to a seven-month low.
Before their final policy meeting of the year, Fed officials will get a dated reading on their preferred inflation gauge. On Friday, the September income and spending report is due to be released — long delayed because of the government shutdown.
The figures will include the personal consumption expenditures price index and a core measure that excludes food and energy. Economists project a third straight 0.2% increase in the core index. That would keep the year-over-year figure hovering just below 3%, a sign that inflationary pressures are stable, yet sticky.
“Right now, the data argues for additional Fed funds rate cuts. US labor demand is weak, consumer spending is showing early signs of cracking, and upside risks to inflation are fading,” said Elias Haddad at Brown Brothers Harriman & Co.
Corporate News
Paramount Skydance Corp. more than doubled the proposed breakup fee in its offer to acquire Warner Bros. Discovery Inc. to $5 billion, according to people familiar with the company’s offer, part of a sweetened proposal designed to outshine rival bids. Singapore’s stock exchange is considering buying Cboe Global Markets Inc.’s Australian unit, the Australian Financial Review reported. On one of Larry Fink’s frequent trips to Australia, the BlackRock Inc. chief sized up a boutique finance firm run by an Olympic swimming champ — a prelude to a A$25 million ($16.5 million) play to crack open one of the world’s richest retirement systems. Hong Kong builder New World Development Co. failed to get full support from creditors in a key bond-exchange plan that required them to accept cuts in the value of their holdings. Microsoft Corp. slid 2.5% on a report of lower demand for some artificial-intelligence tools even as the company said aggregate sales quotas for AI products have not been reduced. Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 2:35 p.m. Tokyo time Japan’s Topix rose 1.7% Hong Kong’s Hang Seng rose 0.1% The Shanghai Composite fell 0.1% Euro Stoxx 50 futures rose 0.5% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1660 The Japanese yen was little changed at 155.35 per dollar The offshore yuan was little changed at 7.0647 per dollar Cryptocurrencies
Bitcoin fell 0.7% to $93,075.12 Ether rose 0.6% to $3,184.46 Bonds
The yield on 10-year Treasuries advanced two basis points to 4.08% Australia’s 10-year yield advanced six basis points to 4.70% Commodities
West Texas Intermediate crude rose 0.6% to $59.33 a barrel Spot gold fell 0.2% to $4,194.37 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Aya Wagatsuma, Winnie Hsu and Richard Henderson.
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