- Asian stock markets:
- Nikkei up 1.6% to break key level; dollar increased
- Oil prices reduce the rise after Saudi’s major production cuts
- The markets are betting on the Fed to take a break in June, see risks for an upswing in July
SYDNEY, June 5 (Reuters) – Most Asian stock markets extended a global rally on Monday on optimism that the Federal Reserve would halt interest rate hikes this month after a mixed U.S. jobs report, while oil jumped after Saudi Arabia promised major output cuts.
Brent crude rose 1% to $76.89 a barrel, giving up some of its earlier gains to as high as $78.73, while U.S. crude rose 1.2% to $72.61 a barrel, after reached a session of $75.06.
Oil prices have recently come under pressure due to heightened concerns about China’s slowing economic recovery.
They rose after Saudi Arabia announced it would cut production to 9 million barrels per day in July, from about 10 million barrels per day in May, the biggest cut in years, while a broader OPEC+ deal to curb supply in in 2024 also substantiated futures.
“With Saudi Arabia protecting oil prices from falling too low … we think oil markets are now more vulnerable to a shortage later this year,” said Vivek Dhar, a mining and energy commodities strategist at the Commonwealth Bank of Australia.
“We believe Brent futures will rise to $US85/bbl by Q4 2023, even with a tepid demand recovery in China taken into account.”
On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.2%, while Japan’s Nikkei (.N225) rose 1.7% to above 32,000 for the first time since July 1990.
Hong Kong’s Hang Seng index (.HSI) rose 0.6% while China’s blue chips underperformed with a 0.4% drop.
S&P 500 futures fell 0.1% and Nasdaq futures fell 0.3% in Asian hours, after a strong rally on Friday, driven by a mixed US jobs report, a resolution on the debt ceiling and the prospect of a US interest rate pause this month.
Data on Friday showed the US economy added 339,000 jobs last month, higher than most estimates, but moderating wage growth and rising unemployment led markets to continue betting on no change in Fed interest rates this month, with a chance of 75% priced in for it, according to the CME FedWatch tool.
However, there is about a 70% chance that Fed Funds rates will reach 5.25-5.5% or more at the July meeting and little chance of a rate cut by the end of this year.
Treasury yields continued to rise on Monday. U.S. two-year Treasury yields rose 4 basis points to 4.5449%, on top of a 16.2bp gain on Friday, and 10-year yields also rose 3bp to 3.7215%, after an 8bp gain on Friday.
Fitch Ratings said the US’s “AAA” credit rating will remain negative, despite the debt deal.
The US dollar remained high on Monday at 104.14 against its major peers, after gaining 0.5% on Friday on the jobs report. The dollar also gained 0.16% on the Japanese yen to 140.17 while the euro fell 0.1% to $0.10698.
Central banks from Australia and Canada meet this week. Markets see a strong chance – around 40% – that the RBA could surprise with a quarter-point hike on Tuesday, following a minimum wage decision that some economists feared could add to inflationary pressures.
The Bank of Canada meets on Wednesday. A majority of economists polled by Reuters expect the BOC to keep interest rates on hold at 4.5% for the rest of the year, although the risk of another rate hike remains high.
Editing by Himani Sarkar and Sam Holmes
Our standards: Thomson Reuters Trust Principles.