Finance

Asian shares rise as investors count down to cuts: markets close

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6 days ago

August 26, 2024

Asian shares rise as investors count down to cuts: markets close

(Bloomberg) — Asian shares rose for a third session and the yen strengthened to a three-week high as the prospect of Federal Reserve rate cuts on the horizon stoked sentiment.

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Stocks in Australia and Hong Kong rose on Monday, benefiting from Chairman Jerome Powell’s speech in Jackson Hole in which he said the “time has come” to move on monetary easing. The Fed’s dovish stance also lifted the yen against the dollar, as Asia-based funds added to existing short positions on the dollar. Japanese stocks fell as the currency strengthened, while U.S. stock contracts held steady.

Positioning for lower U.S. borrowing costs is rippling through financial markets, with global stock trading falling short of all-time highs as the dollar falls and investors pile into government debt. The yield on ten-year US government bonds fell by two basis points to 3.78% on Monday.

Buying ports in response to rising tensions in the Middle East has been an additional boost to currencies. Oil advanced 0.7% as the region braced for an escalating conflict following an Israeli attack on Hezbollah targets in southern Lebanon.

“There has to be risk,” said Chamath De Silva, head of fixed income at Betashares Holdings in Sydney. “Powell has confirmed that we will soon enter an easing cycle and that the battle against inflation is over, so I expect a bit of a rally with both stocks and bonds performing well.”

The Bloomberg Asia Dollar Index started the week by rising to its highest level since January. The Korean won climbed, while the Singapore dollar rose to its strongest in almost a decade, as traders weighed the difference between the local monetary authority’s relatively aggressive policy outlook compared to the Fed’s.

Powell’s long-awaited Jackson Hole speech marks a turning point in the Fed’s two-year struggle to slow inflation, and means officials are likely to cut interest rates from their highest level in more than two decades. Although the world’s largest economy is showing signs of cooling – which warrants a turnaround – there is no sign of an outright contraction yet.

“My view is that the US is heading for a soft landing” and that Asian exports are doing well, said Khoon Goh, head of Asia research at ANZ Group Holdings Ltd. “I think we’ll see a strong rally, a recovery in Asian currencies during this Fed easing cycle.”

ChinaMLF

The People’s Bank of China has left the interest rate on its one-year policy loans, or medium-term loans, at 2.3% after cutting rates by 20 basis points in July. The PBOC has indicated that it is de-emphasizing the role of the medium-term lending facility as a policy instrument, while elevating the seven-day reverse repo rate to greater prominence.

The decision underlines Beijing’s cautious approach to supporting the economy, even as China reported a rare contraction in bank lending due to weak demand. The PBOC has walked a fine line in recent months in boosting growth and cooling the government bond buying spree to limit financial risks.

Reflecting the economy’s lackluster performance, the CSI 300 index of stocks fell 0.4% on Monday.

Authorities in China have also begun stress testing financial institutions on their bond holdings to ensure they can handle market volatility if a record-breaking rally reverses, state media said.

Elsewhere, gold prices remained near a record high after Powell confirmed expectations of cuts. The metal is up more than 20% this year in a blistering rally driven by Fed hopes, haven demand from geopolitical risks and buying from central banks and Asian consumers.

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