Asian stocks reached a seven-month high on Friday, following the lead of global markets as investors reacted positively to the possibility of major central banks implementing rate cuts. This trend has put pressure on the US dollar and Treasury yields. However, Japan remains an outlier, with expectations mounting that the Bank of Japan (BOJ) may exit negative interest rates this month, causing the yen to strengthen and domestic bond yields to rise.
โ Asian stocks reach seven-month high as investors anticipate rate easing cycle
โ Japan may exit negative interest rates, leading to stronger yen and rising bond yields
The MSCIโs broadest index of Asia-Pacific shares outside Japan rose to its strongest level since August, peaking at 538.47 points in early Asia trade. It was up 1% and on track for a weekly gain of nearly 2%. This rally in Asian stocks follows record highs in global stock indexes after the European Central Bank (ECB) hinted at a potential rate cut in June, while Federal Reserve Chair Jerome Powell indicated a similar stance on US rates.
โ MSCI index reaches highest level since August
โ Global stock indexes rally after ECB and Fed announcements
Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank, noted that Powellโs comments about rate cuts were seen as an โopen invitation to pivot-type ralliesโ by markets. This sentiment is reflected in the falling two-year US Treasury yield, which suggests that traders are increasingly expecting imminent rate cuts by the Fed. The benchmark 10-year yield also remains under pressure. The nonfarm payrolls report due later on Friday will provide further insight into the US rate outlook.
โ Market reacts positively to Powellโs comments
โ Falling Treasury yields indicate expectation of Fed rate cuts
Tony Sycamore, a market analyst at IG, warns that if the nonfarm payrolls data and US inflation figures turn out to be better than expected, it could have a negative impact on equity markets, assets like gold and bitcoin, and currency markets. He considers this to be a potential risk, although not his base case scenario.
โ Nonfarm payrolls data and inflation figures may have negative impact if better than expected
โ Sycamore warns of potential risks
Meanwhile, the prospect of an imminent Fed easing cycle has weakened the US dollar, causing it to hit a two-month low against the euro. The single currency was last trading at $1.0948 after reaching $1.0956 earlier in the session. Similarly, the British pound rose to an over two-month high of $1.2820.
โ Weaker US dollar as Fed easing cycle looms
โ Euro and pound strengthen against the dollar
The yen has also strengthened against the US dollar, reaching a one-month high of 147.54 per dollar. This is due to recent comments from BOJ officials suggesting that the central bank may soon move away from its ultra-easy monetary policy stance. The Japanese currency is on track for its best week since December with a nearly 1.5% rise.
โ Yen strengthens against the dollar as BOJ hints at policy change
โ BOJ officialsโ comments fuel speculation of pivot away from ultra-easy policy
Reflecting expectations of a near-term BOJ pivot, Japanese government bond (JGB) yields have risen. The two-year JGB yield reached its highest level since April 2011 at 0.2%, while the 10-year JGB yield was up 1.5 basis points at 0.74%. This indicates that market participants believe the BOJ has everything in place to deliver an exit from negative interest rate policy.
โ Rising JGB yields indicate expectations of BOJ pivot
โ Market believes BOJ has conditions for stimulus exit
Despite a stronger yen typically being bad for Japanese stocks, the Nikkei rode the wave of global equities and was up 0.67% on Friday.
โ Nikkei bucks trend and rises alongside global equities
โ Stronger yen usually negatively impacts Japanese stocks
In China, stocks started the session strong, with blue chips rising 0.4% and the Shanghai Composite Index gaining 0.25%. However, both indexes are set to end the week little changed. Data released on Thursday showed that Chinaโs export and import growth in the January-February period exceeded expectations. Despite this positive news, investor sentiment remains low due to the lack of details regarding strong stimulus from Beijing to support the countryโs economic recovery.
โ Chinese stocks start strong but end week little changed
โ Export and import growth exceeds expectations but fails to improve sentiment
In commodity markets, Brent crude rose 31 cents to $83.27 a barrel, while US crude gained 40 cents to $79.33 per barrel. Spot gold edged 0.1% lower to $2,157 an ounce after reaching an all-time high of $2,164.09 in the previous session. The appeal for gold has increased due to the prospect of an imminent Fed easing cycle.
โ Brent and US crude oil prices rise
โ Gold appeal increases as Fed easing cycle looms
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