Asian Shares Gain as Markets Lower Fed Rate Hike Expectations
Asian Shares Gain, Dollar Slips Following Diminished Fed Rate Hike Risks
Market Overview and Recent Developments
By Stella Qiu
SYDNEY, Aug 17 (Reuters) – Asian shares edged higher on Monday, led by Chinese stocks ahead of key economic data, while investors kept a wary eye on oil prices after sizeable gains last week amid a stalemate in the Gulf conflict.
Currency Movements and Fed Rate Expectations
The U.S. dollar slipped towards two-month lows after a soft run of data, including an unexpected drop in retail sales, had markets giving up bets for an imminent rate hike from the Federal Reserve. A rate hike next month is now priced at 30%, down sharply from about 50% a week earlier, according to the CME Group’s FedWatch tool.
Asian Stock Market Performance
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%, while Japan’s Nikkei edged 0.3% higher.
Chinese and Hong Kong Markets
Chinese blue-chips rose 0.8% and the Hang Seng index gained 1.6% ahead of China’s activity data for July due later in the day. Forecasts are centred on a slowdown in industrial output growth to 4.8%, from 5.3% previously, but investors could be bracing for an upside surprise given exports boomed on robust global AI demand last month.
South Korea and Regional Developments
South Korea’s stock markets were closed on Monday for a public holiday. There was subdued reaction in the Korean won after U.S. President Donald Trump instructed the Pentagon to substantially reduce joint military exercises with the country.
Oil and Commodity Markets
Oil prices were mixed after last week’s gains. Iran on Saturday called on the U.S. to accept defeat, while Trump urged Americans to accept higher gasoline prices while the conflict continues.
Middle East Tensions
At least 11 people were killed in Israeli strikes in southern Lebanon on Saturday, the Lebanese health ministry said, some of the deadliest in the weeks since the country agreed to a U.S.-mediated peace framework with neighbouring Israel.
Oil Price Movements
Brent crude inched up 0.2% to $88.67 a barrel after rising 6% last week, while U.S. crude slipped 0.2% to $82.19 a barrel, having gained 5.4% last week.
Expert Commentary
“While there is still no resolution to the Iran/Hormuz impasse, our base case remains that oil prices will stay in a $70-$100 range with Iran preventing it going lower and the U.S. moving to try and calm things down whenever it gets above $100,” Shane Oliver, chief economist at AMP, said in a note.
“The risk remains that there will be no sustainable peace deal, the flow of oil out of the Middle East remains down 10%-15% on normal levels and that we will have to face higher oil prices as reserves run down.”
Fed Rate Risk Fades and Global Market Response
FED RATE RISK FADES
Global Equities and U.S. Market Futures
In Europe, EUROSTOXX 50 futures rose 0.3%. S&P 500 futures gained 0.1%, having hit a record last week, while Nasdaq futures firmed 0.3%.
Drivers of Bullish Sentiment
The bullish run in stocks has been driven by diminishing risk that the Federal Reserve will raise interest rates next month. U.S. retail sales posted the first decline in nine months in July and consumer sentiment soured by more than expected, adding to soft inflation readings.
Upcoming Earnings and Economic Data
Earnings are lighter this week but include Home Depot, Target and Walmart, as investors scrutinise the strength of U.S. consumers. The main data point this week is the August S&P Purchasing Managers’ Indices (PMIs) to gauge whether the mid-year acceleration in U.S. business activity can be sustained.
Bond Market Movements
In bond markets, U.S. Treasury yields slipped after finishing mixed last week. The two-year U.S. Treasury yield eased 2 basis points to 4.154%, having fallen 3 basis points last week to touch a seven-week low of 4.0977%.
Ten-year yields slipped 2 basis points to 4.680%, after rising 4 basis points last week.
Currency and Commodity Updates
The soft run of data has weighed on the dollar, with the euro hitting a two-month high of $1.1588. The Australian and New Zealand dollars also reached 10-week peaks at $0.7105 and $0.5910.
In commodity markets, gold bounced 0.4% to $4,391 an ounce, having climbed 0.8% last week.
(Editing by Stephen Coates and Jacqueline Wong)
