Asia stocks hold recent gains as confidence grows

Reuters: Asia stocks hold recent gains on Thursday with markets holding onto their gains for the week as confidence grows that interest rates globally will head lower next year, while oil prices fell on the prospects for smaller-than-expected output cuts by OPEC+.

ASIA STOCKS HOLD RECENT GAINS

Investors are also looking to Chinese policymakers for clues on possible support for the long-suffering property market, in line with broader growth targets they are hammering out. MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.11% in thin trading, with Japan and the United States on holiday.

The U.S. market, which has priced out the chances of another rate hike in December, shrugged off strong weekly jobs data Wednesday night that may nevertheless reduce the prospects for quicker-than-expected rate cuts by the Federal Reserve, said Redmond Wong, Greater China market strategist at Saxo Markets. Japanese markets are closed for a national holiday on Thursday after the Nikkei 225 edged up 0.3% the day before and approached a three-decade high. Trading worldwide was expected to be quiet due to the Thanksgiving holiday in the U.S.

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China’s benchmark share index fell 0.3% on Thursday, with the real estate sub-index down 0.8%. A large wealth manager with heavy exposure to the property market disclosed that it faces insolvency with relevant liabilities of up to $64 billion. Chinese government advisers will recommend to an annual policymakers’ meeting that economic growth targets for next year be set at 4.5% to 5.5%, Reuters reported on Wednesday. Hong Kong’s Hang Seng index, lost 0.7% while Australian stocks fell 0.4%.

Markets have generally been buoyant this month, with stocks rallying on expectations of a more benign interest rate backdrop. Wall Street’s benchmark S&P 500 is nearing a fresh high for 2023, with the S&P 500 and MSCI’s all-country index both up more than 8% this month alone. The tech-heavy Nasdaq Composite is up 11% for the month. The next set of forward-looking flash November PMIs will help investors assess recession risks and how quickly rate cuts might begin. The PMIs for the eurozone and Britain are already below the 50 thresholds, suggesting that economic activity is contracting, while the U.S. Oct manufacturing PMI contracted sharply.

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The yield on benchmark 10-year notes was at 4.408% on Thursday, after sliding to a two-month low of 4.363%. The dollar index rose overnight, bouncing from a 2-1/2 month low after data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week. U.S. crude fell 1.25% to $76.14 per barrel and Brent was at $80.84, down 1.37%, extending losses from the previous session after OPEC+ postponed a ministerial meeting, which stoked expectations that producers might cut output less than had been anticipated.

Sterling weakened on Wednesday and Britain’s FTSE 100 fell for a third straight session after UK Finance Minister Jeremy Hunt unveiled tax cuts and other measures in his autumn budget to boost growth, but forecast a far more sluggish economic outlook than previously expected. In cryptocurrencies, Binance chief Changpeng Zhao has stepped down and pleaded guilty to violations of U.S. anti-money laundering laws as part of a $4 billion settlement resolving a years-long investigation into the world’s largest crypto exchange. Bitcoin rose nearly 5% on Wednesday and was last at $37,450. Spot gold added 0.2% to $1,993.04 an ounce.

BRITISH POUND

Reuters: Sterling fell on Wednesday, extending losses after UK finance minister Jeremy Hunt unveiled a series of tax cuts and other measures to boost growth in his autumn budget, but forecast a far more sluggish economic outlook than previously expected. Hunt said gross domestic product is expected to grow by 0.7% in 2024, compared with the expansion of 1.8% forecast in the previous outlook in March from the Office for Budget Responsibility, Britain’s fiscal watchdog. The OBR also said UK economic output would grow by 1.4% in 2025 and by 1.9% in 2026 – weaker than its previous forecasts of 2.5% and 2.1% respectively.

The pound was last down 0.4% on the day at $1.2487, but analysts said this was more a function of the dollar’s strength following an upbeat weekly read of the U.S. labour market, rather than down to UK-centric factors. “If you’re looking at cable, it’s trading below $1.25. But that is lot to do with the dollar move. Initial jobless claims came in much lower, triggering some dollar buying,” Francesco Pesole, FX strategist at ING, said. Against the euro, the pound was down 0.14% at 87.16 pence.

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“I didn’t see many surprises in the budget. You could speculate that the tax cuts potentially have some inflationary connotations along the line, so you could argue for a higher-for-longer stance on interest rates by the Bank of England, although that probably contributed already to sterling outperforming the euro in the past two sessions,” Pesole said. Hunt, who is seeking to boost the fortunes of Prime Minister Rishi Sunak’s struggling Conservative Party ahead of an election expected next year, announced big increases in welfare payments and the state pension.

Britain’s economy has struggled with high inflation and the new OBR forecasts showed the consumer price index was expected to rise by 2.8% next year, up from the March forecast of 0.9%. On Tuesday, the pound hit a 10-week high against a weaker dollar, as BoE Governor Andrew Bailey reiterated the central bank’s stance that interest rates did not need changing. Meanwhile, the dollar rebounded from a 2-1/2 month low on Wednesday following publication of minutes from the U.S. Federal Reserve’s last meeting, which hinted that current rates could persist for some time. “There’s been some profit-taking in long dollar positions ahead of the long weekend in the U.S., and the dollar softened in the early part of the week, but it’s run out of steam in the last 24 hours,” Colin Asher, senior economist at Mizuho Corporate Bank, said earlier in the day.

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U.S. DOLLAR

Reuters: The dollar index rose on Wednesday, rebounding from a 2-1/2 month low after economic data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week. Initial claims for state unemployment benefits dropped by 24,000 to a seasonally adjusted 209,000 for the week ended Nov. 18, the Labor Department said on Wednesday, the lowest level in more than a month. Economists polled by Reuters had forecast 226,000 claims for the latest week. Other data, however, showed orders for long-lasting U.S. manufactured goods fell more than expected in October as orders for motor vehicles and parts dropped amid strikes by the United Auto Workers union against Detroit’s Big Three automakers.

“The fact that we are seeing a drop definitely suggests that the labour market is not cooling as quickly as markets or the Fed might have been expecting there,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “And then at the same time the fact that we have this slowdown in CapEx investment that suggests that underlying momentum in the economy is beginning to fade so, largely still consistent with the soft landing thesis, but labour markets holding up better than expected,” Schamotta added. Schamotta also said market participants were maintaining relatively high dollar positions before liquidity dries up before the U.S. Thanksgiving holiday on Thursday.

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The dollar index had fallen to its lowest level since Aug. 31 on Tuesday before stabilizing after minutes from the Federal Reserve’s last meeting indicated the central bank was likely to maintain a restrictive stance on interest rates for some time, even if more rate hikes are unlikely. The Fed minutes showed central bank officials said inflation remained well above their target but noted that rates would need to be raised only if new data showed insufficient progress on reducing price pressures. Markets have essentially ruled out any move in rates by the Fed at its December meeting, while pricing in a better than 50% chance of a rate cut by May, according to CME’s FedWatch Tool.

The greenback extended gains after the University of Michigan’s survey of consumer sentiment showed U.S. consumers’ inflation expectations rose for a second straight month in November. The dollar index rose 0.37% to 103.9, on track for its biggest one-day percentage gain since Nov 9. The euro was down 0.24% at $1.0883. European Central Bank policymaker Mario Centeno said he expected macroeconomic conditions would lead to a reversal in the bank’s recent cycle of rate hikes in the near future while Governing Council member Joachim Nagel said rates in the eurozone are close to their peak in the current cycle or may have already reached it.

The Japanese yen weakened 0.82% to 149.61 per dollar, while Sterling was last trading at $1.249, down 0.37% on the day. Sterling was poised to snap a four-session streak of gains after British finance minister Jeremy Hunt announced tax cuts for workers before an expected 2024 election and gave businesses permanent investment incentives in an attempt to speed up the economy. In cryptocurrencies, bitcoin shares rose 0.97% to $37,203 a day after falling 1.8% in the wake of Binance chief Changpeng Zhao pleading guilty to breaking U.S. anti-money laundering laws, in a $4.3 billion settlement resolving a years-long probe into the world’s largest crypto exchange. Investors have pulled about $956 million from the crypto exchange over the past 24 hours since Zhao stepped down.

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SOUTH AFRICAN RAND

Reuters: South Africa’s rand slipped in early trade against the dollar on Wednesday as risk sentiment soured ahead of local inflation data. At 0619 GMT, the rand traded at 18.6625 against the dollar, 0.2% weaker than its previous close. The dollar index was last up 0.18% against a basket of major currencies. At 0800 GMT, investors will turn their focus towards Statistics South Africa, which will release inflation data for October. Analysts polled by Reuters expect year-on-year inflation at 5.5%.

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An interest rate decision by the South African Reserve Bank is due on Today. “The SARB’s MPC is still expected to keep rates unchanged tomorrow while keeping a cautious outlook on inflation,” said Andre Cilliers, currency strategist at TreasuryONE. South Africa’s benchmark 2030 government bond was weaker in early deals, with the yield up 4.5 basis points to 9.950%.

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