Asian stock markets saw positive growth on Monday as investors expressed optimism that the Federal Reserve would temporarily halt its interest rate increases, influenced by a U.S. jobs report that presented a mixed picture.
Concurrently, the announcement of substantial output reductions by Saudi Arabia led to a surge in oil prices.
However, this positive sentiment is expected to face resistance in Europe, as futures indicate a slight decline in the pan-regional Euro Stoxx 50, S&P 500, and Nasdaq.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan had stood on a standstill for the day, as damages in Chinese stocks offset profits quite elsewhere.
On the brighter side, Japan’s Nikkei surged 2.1% to stand above 32,000 for the first time since July 1990. Hong Kong’s Hang Seng index also rose 0.4%, while China’s blue-chip index fell 0.7%.
Morgan Stanley recently lowered their index targets for offshore-centric Chinese indices, citing factors such as a delayed earnings recovery, a weaker currency outlook, and geopolitical uncertainties.
According to Laura Wang, an equity strategist employed at Morgan Stanley, the current weaker macroeconomic data in China suggests an irregular and imbalanced recovery, rather than signalling the conclusion of its upward trajectory.
She expects policy makers to implement easing measures around late June or early July, and anticipates a consumption-led recovery to broaden out in the second half of the year as the job market and income levels improve.
On Monday, oil prices, which only recently come under stress amid picking-up concerns about China’s drag-down of the economy, climbed after Saudi Arabia proclaimed it would cut its production to 9 million barrels each day in July, dejected from about 10 million barrels a day in May.
This reduction marks the biggest output cut in years. Brent oil jumped 1.2% to $77.07 each barrel by 0600 GMT, shedding away some of its previous gains that touched a peak of $78.73, whilst U.S. crude mountain-climbed 1.3% to $72.69 a barrel after hitting a session high of $75.06.
Vivek Dhar, a mining and energy commodities strategist at Commonwealth Bank of Australia, stated, “With Saudi Arabia protecting oil prices from sliding too low, we think oil markets are now more prone to a shortfall later this year.”
He further forecasted that Brent futures may touch $85/bbl by the Q4 of this year, even thinking of a growing demand rebound in China.
Despite the positive jobs report showing an addition of 339,000 jobs in the U.S. economy, markets continue to bet on no change in Federal Reserve rates this month, as wage growth moderation and a rising jobless rate outweigh the strong job numbers.
According to the CME FedWatch tool, there is a 75% chance priced in for the Fed to hold rates steady.
However, if U.S. inflation continues to be elevated, there is around a 70% likelihood that Fed funds costs could touch 5.25-5.5% or more at the policy gathering in July.
Conversely, markets now see marginal chance of a rate cuts by the close of this year.
Treasury yields continued to climb on Monday. Yields on U.S. two-year Treasuries rose 3 basis points to 4.5410%, adding to the surge of 16.2 basis points on Friday.
Ten-year yields also climbed 3 basis points to 3.7216% after an 8 basis point rise on Friday. Fitch Ratings stated that despite the debt agreement, the United States’ “AAA” credit rating would remain on negative watch.
In the currency market, the U.S. dollar strengthened against its major peers on Monday.
It stood against many of its peers and while the greenback can hold its claim among a tin of mainstream currencies, it is still not too rare for a stumble. In most cases, the dollar has the safe-haven buffer to help it rebound in a nightly showcase on the charts.