Shares and bonds staged a relief rally in Asia on Thursday while the yen held on to gains as investors awaited fresh US data and central banker comments for signals that could determine whether the Federal Reserve tightens policy this month.
Japanese government bond yields slid from historic peaks, tracking a recovery in Treasuries overnight, ahead of an auction of super-long debt in Tokyo. Oil edged lower from elevated levels as uncertainty prevailed over renewed military strikes between the US and Iran.
The market’s immediate focus is Friday’s pivotal US payrolls report after disappointing private labour data for August. Fed Board Governor Christopher Waller is due to speak after Federal Reserve Bank of New York President John Williams tempered expectations of a hike this month.
“If this war were to be put to bed, then that would certainly be something very positive to bring yields back down again across the board,” Gavin Friend, a senior markets strategist at NAB, said on a podcast.
“It would ease a lot of the tensions because central banks could get that back to thinking about normal policy considerations after a time.”
MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.5 per cent, after US stocks ended the previous session with mild gains.
The dollar index, which measures the greenback against a basket of currencies, fell 0.05 per cent to 99.54.
The euro edged up 0.02 per cent to $US1.1589 ($A1.6167), while the yen strengthened 0.07 per cent to 158.59 per dollar, following a 0.9 per cent surge in the prior session.
US Treasury yields eased from multi-year highs overnight. The rise in borrowing costs across major economies had deepened concerns about tighter monetary policy and deteriorating fiscal conditions.
The yield on benchmark US 10-year notes fell 0.99 basis point (bp) to 4.784 per cent. The yield on the 30-year JGB sank 10 bps to 4.065 per cent, down from a near record high before Japan’s Ministry of Finance auctions the securities later in the day.
Investors remained on edge over developments in the Middle East after the US and Iran exchanged their largest barrage of attacks since July, reviving fears of a broader regional escalation.
US crude fell 0.3 per cent to $US90.74 ($A126.59) a barrel and Brent fell to $US95.21 ($A132.82) per barrel, down 0.44 per cent on the day. Spot gold added 0.32 per cent to $US4,400.47 ($A6,138.92) an ounce, while spot silver rose 0.51 per cent to $US65.65 ($A91.59) an ounce.
Traders have recently increased bets on a Federal Reserve interest rate hike. They now assign a roughly two-in-three chance that the Fed will deliver a 25-basis-point rate increase this month, up from 37 per cent a week ago, according to CME Group’s FedWatch tool.
The Fed’s Williams said on Wednesday that rising long-term bond yields are a reflection of a solid economy, adding that he was still collecting information to drive his next monetary policy decision.
The key non-farm payrolls report is due on Friday, following an ADP National Employment Report that showed lower than expected job gains.
Policy meetings of the European Central Bank and the Bank of Japan will also be closely watched as markets gauge how far major central banks are prepared to tighten policy in response to persistent inflation pressures.
Data on Thursday showed Japan’s services sector expanded at its fastest pace in five months in August, adding to evidence the economy is robust enough to handle a BOJ rate hike.
In early European trades, the pan-region Euro Stoxx 50 futures were down 0.02 per cent, German DAX futures eased 0.01 per cent and FTSE futures lost 0.1 per cent.
US stock futures, the S&P 500 e-minis, were flat at 7,676.3.
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