Asian shares rallied on Monday as the robust U.S. jobs report was seen as positive for global growth even as it narrowed the odds on a rise in interest rates, while oil edged higher after the U.S. and Iran attacked ships in the Gulf.
Tehran said it will announce a restricted zone outside the Strait of Hormuz in coming days, after U.S. forces hit three Iranian tankers and Iran’s Islamic Revolutionary Guard Corps launched ballistic missiles at two U.S. Navy ships.
As a result, Brent added 0.2% to reach $96.45 a barrel LCOc1, having climbed almost 10% last week, while U.S. crude rose 0.4% to $91.85 a barrel CLc1.
That inflationary impulse raises the stakes for a key reading of U.S. consumer prices this week, and is a major reason the European Central Bank is seen as certain to lift rates to 2.75% on Thursday. Futures also imply a 75% chance of another hike to 3.0% by December. 0#EURIRPR
The risk of hawkish guidance from the ECB after the rate hike kept European stocks on edge on Monday 50 futures and DAX futures eased 0.1%, while FTSE futures FFIc1 were flat.
On Wall Street, a U.S. holiday kept turnover light with both S&P 500 futures ESc1 and Nasdaq futures NQc1 a fraction lower.
A key focus this week is the U.S. August CPI report on Friday where median forecasts are for a rise of 0.2% in the core, with a risk of 0.3%.
In Asia, Japan’s Nikkei rebounded 2.0%, after losing a similar amount last week, while South Korea rallied 3.0%. MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.9%.
Rising bond yields remain a drag for equity valuations, with Treasury 10-year yields near their highest since late 2023 at 4.7840%. A high CPI reading would likely see yields edge closer to the psychological 5.0% barrier.
For the Federal Reserve, last week’s upbeat payrolls report has left markets pricing a 58% chance of a hike when it meets on September 16, and 70% for a move in October.
CENTRAL BANK ‘ON THE MOVE’
Bruce Kasman, global head of economics at JPMorgan, is looking for core CPI to rise 0.21% which he thinks would be low enough to keep the Fed on hold, if only for now.
Likewise, markets are pricing a 75% chance the Bank of Japan will raise rates a quarter point at its meeting on September 18, with a 60% probability of another move by December.0#JPYIRPR
“Central bank patience through the energy shock has been supportive of asset prices and the credit cycle,” said Kasman. “However, central banks are now on the move.”
“We forecast two more hikes from the ECB and BoJ before year-end,” he added. “There is also a strong case for the Fed to move earlier and more aggressively than our baseline forecast for a December hike.”
In currency markets, the dollar index got only a mild lift from the jobs report as worries about ever-growing U.S. debt and policy uncertainties erode the purchasing power of the currency, driving investors to scarce assets including gold.
The dollar index stood at 99.135, not far from recent lows at 98.558. The euro held at $1.1614, within sight of the August top at $1.1711.
The dollar was a tick easier at 156.07 yen, and still threatening major support at 155.00 after losing 2.4% last week as the yen rallied on speculation about a more aggressive BoJ tightening.
In commodities, gold was steady at $4,426 an ounce, after finding support at $4,282 last week.
(Reuters)
