MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.3% and was set to increase more than 2% for the week
Asian shares were headed for a weekly gain on Friday and Japan’s benchmark Nikkei was poised for its best week in over four years following upbeat risk sentiment on the Wall Street, while the dollar and U.S. Treasury yields held broadly steady.
Last week’s market turmoil calmed this week after a raft of U.S. economic data reduced recession fears in the country’s economy and pushed back expectations for aggressive U.S. rate cuts.
Our assessment is that the market fallout from the weak early August U.S. data was disproportionate, according to Jonas Goltermann, deputy chief markets economist at Capital Economics.
In large part, it reflected the rapid unwinding of crowded positions in some markets, he said.
While the risk of a recession in the US has increased a little, there are few signs of a more substantial crisis brewing, he added.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.3% and was set to increase more than 2% for the week, while U.S. futures extended gains following a strong overnight cash session on Wall Street.
S&P 500 futures gained 0.13%, while Nasdaq futures advanced 0.2%. EUROSTOXX 50 futures added 0.17%, though FTSE futures slipped 0.06%.
Strong U.S. retail sales data and low weekly jobless claims were the latest shot in the arm for the positive risk mood, following this week’s benign inflation report that re-affirmed bets for imminent Federal Reserve rate cuts, but possibly at a measured pace.
Markets are now pricing in just a 25% probability of a 50 basis point cut by the Fed next month, down from 55% a week ago, as per the CME FedWatch tool.
The totality of data tells us disinflation is continuing and the Fed is almost certain to cut rates in September by 25 basis points, according to David Chao, Invesco’s global market strategist for Asia Pacific ex-Japan.
But I do believe that the July inflation report diminishes the chances of a super-size cut, though this was never in the cards, he added.
Japan’s Nikkei climbed around 3%, outperforming other Asian benchmarks as Chinese blue-chips edged up, and Hong Kong’s Hang Seng Index gained 2.1%.
The Nikkei was poised for a weekly gain of nearly 8%, its best performance since April 2020, after last week’s heavy losses exacerbated by the unwinding of yen-funded trades.
