Asia shares jump on Fed cuts bets; yen pares gains.

Yasir AliMay 6, 2024

0 19 3 minutes read

Asia shares jump on Fed cuts bets; yen pares gains.

The Federal Reserve (Fed) is expected to lower interest rates this year, as investors continued to bet on Asian markets rising on Monday. Meanwhile, the yen declined following a sharp increase last week due to Tokyo’s alleged currency intervention.

With Japan on vacation, trading was light throughout Asia, but mainland China’s markets started the year strongly following their prolonged hiatus.
The MSCI Asia-Pacific shares outside of Japan broadest index,.MIAPJ0000PUS, opened with a new tab that was up more than 0.5%, while China’s blue-chip index,.CSI300, expanded 1.4%.

Due to the Labour Day holiday, mainland markets were off from Wednesday to Friday, but Chinese shares listed overseas saw significant advances last week.

The index known as the Hang Seng (.HSI) of Hong Kong, opens new tab, saw a 4.7% increase last week and recorded its longest streak of victories since 2018 on Friday. The last decrease was 0.2%.

The Golden Dragon China Index, which is traded on the Nasdaq (.HXC), last week saw a 5.5% increase. Comparably, the offshore yuan recently traded at a 0.1% discount to the dollar, down from a 1% gain the previous week, partly attributable to the dollar’s general decline.

Accompanying the offshore fluctuations, the People’s Banking System of Beijing on Monday additionally pushed the official yuan floor to the highest level in three weeks. As a result, the onshore yuan reached its highest level of 7.2009 per dollar in more than a month.

Following the Politburo meeting, when officials pledged to increase encouragement for the economy through proactive fiscal and monetary policies, Chinese markets have rebounded.

The National People’s Congress was held in March, and while the overall policy position remains the same, Louisa Fok, a China equity analyst at Bank of Singapore, noted that the fiscal policy tone is more encouraging.

“In the upcoming months, policy implementation will be a crucial catalyst to keep an eye on. From a company fundamental standpoint, revision velocity in profits growth expectations would also be an important metric to monitor.”

The U.S. nonfarm payrolls number, which came in lower than anticipated, on Friday provided a further impetus for the broader market advance in Asia. Following Chair Jerome Powell’s affirmation of the Fed’s easing tendency last week, this strengthened bets that rate cuts from the Fed would probably occur later this year.

On Monday, the dollar remained relatively stable, preventing the euro from reaching a one-month high of $1.0766, while sterling also last traded at $1.2551. Due to the Japan holiday, trading in cash US Treasury bonds was suspended; nevertheless, futures saw minimal movement.

INTERRUPTION MONITOR

In other news, traders continued to monitor any additional yen volatility following episodes of alleged Japanese government intervention last week to halt a precipitous decline in the value of the currency.

According to figures from the Bank of Japan, Tokyo is believed to have spent almost 9,000,000,000 yen ($59 billion) to maintain its currency last week. In just one week, the yen rose from a 34-year bottom of 160.245 each $ to a nearly one-month high of 151.86. On Monday, the yen gave up some of its gains and closed the day 0.4% weaker against the dollar at 153.62.

The economic chiefs of China, Japan, and South Korea stated on Friday that increased volatility in the foreign exchange market is one risk factor that may have an immediate impact on the prospects for regional growth.

According to Charu Chanana, head of FX strategy at Saxo, “any resulting yen strength could be more sustainable” because there aren’t many significant U.S. economic data releases this week. Commodity futures for Brent and U.S. crude both increased by 0.3% and 0.5%, respectively, to $83.21 and $78.39 a barrel.