Shares and Bonds Rally as Markets Watch for Federal Reserve Rate Signals
By Rocky Swift
Market Movements and Investor Sentiment
TOKYO, Sept 3 (Reuters) - Shares and bonds staged a relief rally in Asia on Thursday while the yen held on to gains as investors awaited fresh U.S. data and central banker comments for signals that could determine whether the Federal Reserve tightens policy this month.
Bond Yields and Currency Fluctuations
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 U.S. and Iran.
Upcoming U.S. Payrolls Report
The market's immediate focus is Friday's pivotal U.S. 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.
Expert Insights on Market Tensions
"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."
Regional and Global Market Performance
MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.5%, after U.S. stocks ended the previous session with mild gains.
The dollar index, which measures the greenback against a basket of currencies, fell 0.05% to 99.54. The euro edged up 0.02% to $1.1589, while the yen strengthened 0.07% to 158.59 per dollar, following a 0.9% surge in the prior session.
Bond Yields and Fiscal Concerns
U.S. 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 U.S. 10-year notes fell 0.99 basis point (bp) to 4.784%. The yield on the 30-year JGB sank 10 bps to 4.065%, down from a near record high before Japan's Ministry of Finance auctions the securities later in the day.
Geopolitical Risks and Commodity Prices
Investors remained on edge over developments in the Middle East after the U.S. and Iran exchanged their largest barrage of attacks since July, reviving fears of a broader regional escalation.
U.S. crude fell 0.3% to $90.74 a barrel and Brent fell to $95.21 per barrel, down 0.44% on the day. Spot gold added 0.32% to $4,400.47 an ounce, while spot silver rose 0.51% to $65.65 an ounce.
Federal Reserve and Central Bank Policy Outlook
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% a week ago, according to CME Group's FedWatch tool.
Statements from Federal Reserve Officials
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 nonfarm payrolls report is due on Friday, following an ADP National Employment Report that showed lower than expected job gains.
Global Central Bank Meetings
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.
Japan's Economic Performance
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.
Futures and Market Outlook
In early European trades, the pan-region Euro Stoxx 50 futures were down 0.02%, German DAX futures eased 0.01% and FTSE futures lost 0.1%.
U.S. stock futures, the S&P 500 e-minis, were flat at 7,676.3.
(Reporting by Rocky SwiftEditing by Shri Navaratnam)
