Asian stocks rise on rate-cut wagers; spotlight on India

Asian stocks saw gains on Wednesday, with the dollar remaining stable. This comes as the weakening U.S. labor market increases expectations of a September interest rate cut by the Federal Reserve. However, concerns about a slowdown in the U.S. economy limited risk appetite for investors. The focus in Asia is also on the performance of Indian markets, after stocks and the rupee declined due to the narrower-than-anticipated victory margin for Prime Minister Narendra Modi in recent voting results. The MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 0.24%, but the Nikkei fell by 1% as the Japanese yen approached two-week highs. In China, stocks were mixed, with the CSI300 index remaining relatively unchanged, while Hong Kong’s Hang Seng index rose by 1%.
According to a private sector survey, China’s services activity in May grew at the fastest pace in 10 months, indicating a sustained recovery in the second quarter. Additionally, staffing levels expanded for the first time since January.

On the other hand, data from the US showed that job openings fell more than expected in April, reaching the lowest level in over three years. This suggests that labor market conditions are weakening. As a result, there is increasing speculation of rate cuts this year, with markets pricing in a 45 basis point easing. The CME FedWatch tool revealed that traders are now pricing in a 65% chance of a rate cut in September, compared to 46% a week earlier.

ING economists commented that while the job openings data may not affect Friday’s payrolls, it does confirm the softening of the US labor market.

As a result of this news, benchmark 10-year note yields in Asia were at 4.3376%, after reaching a nearly three-week low of 4.314 on Tuesday following the release of the jobs data.
In early trading, the dollar index, which measures the U.S. currency against six rivals, remained stable at 104.14 after reaching a nearly two-month low of 103.99 on Tuesday.

According to a Reuters poll of FX strategists, the dollar’s strong performance in recent times is expected to give way to slight weakness over the next 12 months. The strategists generally agreed that the dollar is currently overvalued.

Daragh Maher, head of FX strategy for the U.S. at HSBC, stated that if inflation remains persistent, it may not lead to a rate hike but could prompt the market to reassess the amount of easing that the Federal Reserve can provide in 2024, considering the limited time available.

Maher also noted that aside from inflation data, negative news regarding economic growth will likely have a straightforward negative impact on the dollar unless concerns about a recession become more pronounced.

As a result of the dollar’s weakness, the yen strengthened, reaching a more than two-week high of 154.55 per dollar on Tuesday. On Wednesday morning, it was trading at 155.48.
The Nifty 50 index in India is expected to have a subdued start following a 6% decline on Tuesday, the worst session in four years. Foreign investors have sold approximately $1.5 billion worth of shares. Prime Minister Modi’s Bharatiya Janata Party has lost its majority in parliament for the first time in ten years and now relies on regional allies to maintain control. This has raised concerns about economic policies, particularly the focus on investment-led growth. Huzaifa Husain, head of India equities at PineBridge Investments, believes that while the uncertain election result may impact market sentiment in the short term, the Indian economy will continue its robust growth trajectory.
During early Asian trading, oil prices experienced a slight decline due to concerns over demand, following a report showing an increase in U.S. crude and fuel stockpiles. Brent crude futures dipped by 0.1% to reach $77.47 per barrel, while U.S. West Texas Intermediate crude futures dropped by 0.12% to $73.16 per barrel.

On the other hand, gold prices witnessed a 0.09% increase, reaching $2,330 per ounce.