Markets extend global rally

HONG KONG: Asian equities on Monday built on a global rally after a mixed US jobs report lifted hopes the Federal Reserve (Fed) will hold off hiking interest rates this month.

The figures, combined with news that Washington had finally passed a debt ceiling deal to avert a catastrophic default, while a report that China is looking at fresh support for its property sector, also boosted sentiment.

Meanwhile, oil prices extended a rally after Saudi Arabia announced a surprise output cut citing the need to stabilize the market.

Wall Street surged Friday after data showed the US economy added 339,000 jobs last month, far more than expected, indicating the labor market remained strong despite more than a year of Fed rate increases.
HOPEFUL A currency trader passes by the screens showing the Korea Composite Stock Price Index at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea on Monday, June 5, 2023. Asian stocks followed Wall Street higher on Monday after strong US hiring data coupled with scant wage gains suggested a possible recession might be further away. AP PHOTO

However, the report also revealed wage gains moderated slightly, putting less pressure on inflation.

Analysts said the “Goldilocks” reading neither too good nor too bad suggested the economy was not facing an immediate risk of a recession and could still give the Fed room to hold policy steady.

Asian traders welcomed the news, with Hong Kong extending Friday’s 4-percent surge, while Tokyo piled on more than 1 percent along with Sydney and Singapore.

Shanghai was helped by a Bloomberg News report that China was looking at measures to help its beleaguered property sector, which accounts for a huge portion of its economy.

Seoul, Taipei, Manila and Jakarta also rose.

Saudi output cut

The latest advances across equities have come as investors bet the Fed will not tighten monetary policy at its meeting next week, though expectations are it will do so in July.

The central bank has lifted rates 10 times since early last year.

“A combination of a US debt ceiling resolution alongside a mixed US jobs report, still favoring a June Fed pause, and news that China may be considering further support to its beleaguered property sector boosted risk sentiment,” said National Australia Bank’s Rodrigo Catril.

The renewed confidence also saw the so-called VIX fear gauge drop below 15 points to pre-Covid levels.

Mark Hackett, at Nationwide, said: “Investors have spent much of the past three years obsessed by the Fed, inflation and payrolls, though volatility around those reports has settled, reflecting a less emotional market.

“This is bullish, as less reactivity is a sign of a healthy market.”

However, there is a worry that with the borrowing limit standoff out of the way, the Treasury will launch a sale of around $1 trillion of debt to restock its coffers, sucking up cash from banks and sapping liquidity.

Oil prices jumped around 1 percent, adding to Friday’s more than 2-percent advance, after Saudi Arabia slashed output by a million barrels per day for July, which it said was “extendable.”

Energy Minister Prince Abdulaziz bin Salman told reporters after an hours-long meeting of the Organization of the Petroleum Exporting Countries and other key producers that he “will do whatever is necessary to bring stability to this market.”

The crude market has come under pressure in recent months on concerns that a year of rate hikes by central banks would spark recessions and hit demand, while China’s post-zero-Covid rally has run out of steam.

SPI Asset Management’s Stephen Innes said the “moderately bullish meeting… partly offsets some bearish downside risks to most price forecasts, including supply beats in Russia, Iran and Venezuela and downside risks to China demand.”