By Ankur Banerjee
SINGAPORE (Reuters) -Asian shares gained on Thursday on rising expectations the U.S. Federal Reserve will likely cut interest rates in September, while the euro firmed ahead of the European Central Bank policy meeting where a rate cut is widely expected.
The shifting Fed expectations lifted oil prices and dragged Treasury yields to their lowest in two months, putting the dollar under pressure, after data this week hinted the U.S. labour market was easing.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.28%. The index was on course for a 2.8% gain in the week and is set to snap its two-week losing streak.
The exuberance in markets looked set to continue in Europe, futures indicated. Eurostoxx 50 futures was 0.46% firmer and FTSE futures rose 0.27% ahead of the ECB policy meeting later in the day.
Meanwhile, the tech-heavy Taiwan stock index surged more than 2% to touch a record high.
Indian stocks also rose as investors moved past shock election results that reduced the ruling party’s margin of majority and unnerved markets about the path of economic policies in a turbulent week for Indian assets. [.BO]
The ECB meeting will kick off a fresh round of central bank policy reviews, with the Fed and the Bank of Japan due to meet next week and after Bank of Canada cut rates on Wednesday, the first G7 country to do so, in a widely expected move.
The ECB is all but certain to cut interest rates from record highs on Thursday but investor focus will be on comments and economic projections to gauge what comes after the expected rate cut. Markets are pricing in 64 basis points of cuts this year.
“An ECB cut will definitely add to the bullish narrative … any cut will be need to be paired with dovish guidance to raise hopes of further easing,” said Kyle Rodda, senior financial market analyst at Capital.com.
“It’s probably a risky policy but the central bank has painted itself in the corner with its forward guidance.”
The euro was up 0.17% at $1.08875, not far from the two-and-a-half month high it touched on Tuesday, while the yen was last at 155.845 per dollar, inching away from the more than two-week high of 154.55 touched on Tuesday.[FRX/]
Benchmark 10-year note yields were last at 4.2948% after sliding to as low as 4.2750% on Wednesday, the lowest since April 1. [US/]
The S&P 500 and Nasdaq indexes hit record closing highs on Wednesday, with AI darling Nvidia becoming the world’s second-most valuable company after breaching market valuation of $3 trillion. [.N]
The May private payrolls report on Wednesday was the latest data to suggest an easing in the labour market and comes after a report on Tuesday showed job openings fell in April to the fewest in more than three years.
Markets have taken their cue from the labour data this week and are now pricing in 48 basis points of cuts from the Fed this year, with a rate cut in September at 68% chance compared with 47.5% a week earlier, CME FedWatch tool showed.
“We’re still in the Goldilocks range so bad economic news has been good for equities as Fed rate cuts are back on the table,” said Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management.
Investor attention is now on the nonfarm payroll report for May due on Friday, with a Reuters poll of economists expecting it to increase by 185,000 jobs.
“We need that to be around 100-150k to maintain the Goldilocks narrative,” Bennett said. “Much higher than that and yields could move back up, but if we get zero or negative, then we could be talking about a hard landing again.”
In commodities, Brent crude futures rose 0.48% to $78.79 a barrel, while U.S. West Texas Intermediate crude futures rose 0.63% to $74.54. [O/R]
Spot gold rose 0.59% to $2,369 per ounce after a 1% rise previously, while silver rose 1.34% to $30.41 per ounce. [GOL/]
(Reporting by Ankur Banerjee; Editing by Jacqueline Wong)
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