By Stella Qiu
SYDNEY (Multibagger) - In a surprising turn of events, Japanese stocks experienced a significant jump while the yen took a tumble on Thursday as the likelihood of further monetary policy tightening this year diminished. Meanwhile, the red-hot rally in Hong Kong's share market took a pause.
The euro faced heavy losses as market participants started to place bets on the European Central Bank cutting rates at upcoming meetings in October and December. This shift in sentiment came after a top policy hawk, Isabel Schnabel, expressed expectations of inflation returning to target levels.
As MSCI's broadest index of Asia-Pacific shares outside Japan declined by 1%, the Nikkei surged by 2.2% thanks to a weaker yen that improved the outlook for Japanese exporters.
The dollar continued to strengthen against the yen, rising by 0.3% to 146.84 yen, reaching levels not seen in a month. This boost was further propelled by Japan's Prime Minister Shigeru Ishiba's comments indicating a lack of readiness for additional rate hikes, following a meeting with central bank governor Kazuo Ueda.
Ueda emphasized the central bank's cautious approach towards rate hikes, with dovish BOJ policymaker Asahi Noguchi also advocating for the maintenance of loose monetary conditions.
According to Tony Sycamore, an analyst at IG, the recent developments suggest that rate hikes may be off the table until 2025, driving the dollar/yen pair higher. With positive U.S. jobs data in focus, the dollar/yen could potentially reach 149.40, a level last seen in mid-August.
Looking ahead, the likelihood of a BOJ rate hike by December remains below 50%, with rates projected to reach 0.5% by the end of next year.
In other parts of Asia, China's mainland markets were closed for a holiday, while Hong Kong's Hang Seng Index lost 2.5% after a significant surge the previous day. Despite the pullback, the index remains up by 30% in just three weeks following China's stimulus measures to revive its economy.
On Wall Street, trading was mostly flat, but Treasury yields saw an increase after a robust private payrolls report, indicating a healthy U.S. labor market. This development lessened the risk of a major downside surprise in Friday's non-farm payrolls data.
Geopolitical tensions in the Middle East contributed to safe-haven flows into bonds, with Israel's military campaign in Lebanon against the Hezbollah armed group adding to uncertainty. Two-year Treasury yields held steady at 3.648%, while ten-year yields remained flat at 3.79%.
Market expectations suggest a 36% chance of the Federal Reserve cutting rates by another 50 basis points in November, with 70 basis points priced in by year-end.
In the foreign exchange market, the euro struggled at $1.1040, hovering just above key support at $1.10. Oil prices saw an uptick on concerns of potential supply disruptions from the Middle East conflict, with futures rising to $74.68 a barrel. Gold prices remained near a record high at $2,655.90 an ounce.
Overall, the shifting dynamics in global markets underscore the importance of staying informed and adapting investment strategies accordingly. With central banks, geopolitical events, and economic data influencing market movements, investors should remain vigilant and seek expert guidance to navigate the ever-changing landscape of financial markets.