SYDNEY, Jan 7 — Asian shares were set for a rousing start today as a dovish turn by the Federal Reserve and startlingly strong US jobs data soothed some of the market’s worst fears about the global outlook.
Investors are keen to see how Chinese markets react to the central bank’s policy easing announced late on Friday, which frees up around US$116 billion (RM478 billion) for new lending.
Chinese officials also meet their US counterparts for trade negotiations starting later today, the first face-to-face talks of the year.
US President Donald Trump said yesterday that the talks were going very well and that weakness in the Chinese economy gave Beijing a reason to work toward a deal.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.4 per cent in early trade, led by a 1.1 per cent jump in Australia.
Nikkei futures pointed to opening gains of around 500 points for the cash index. E-Mini futures for the S&P 500 edged up another 0.14 per cent.
Risk appetite got a huge boost on Friday when the US payrolls report showed 312,000 net new jobs were created in December, while wages rose at a brisk annual pace of 3.2 per cent.
Despite the strength, Federal Reserve Chairman Jerome Powell sought to ease market concerns about the risk of a slowdown, saying the central bank would be patient and flexible in policy decisions this year.
Markets had already gone much further to price in a major chance of a cut in rates this year, and some of that exuberance was tempered by Powell’s emphasis on the word “patient” in his speech on Friday.
Yet, Fed fund futures still implied a rate of 2.33 per cent by December, compared to the current effective rate of 2.40 per cent.
Yields on two-year Treasuries rose to 2.49 per cent, from a trough of 2.37 per cent, but were still below those on one-year paper.
Powell has another speech on Thursday to expand on his thinking, while there are at least eight other Fed officials scheduled to speak this week.
“Extreme bear”
The combination of a strong jobs report and a dovish Fed helped the Dow end Friday with gains of 3.29 per cent, while the S&P 500 jumped 3.43 per cent and the Nasdaq 4.26 per cent.
Analysts at Bank of America Merrill Lynch noted global equity markets had lost US$19.9 trillion since January last year, and a record US$84 billion had flowed out of stocks in just the past six weeks.
With 2,055 of 2,767 US and global companies in a bear market, it might be time to buy.
“Our Bull & Bear Indicator has fallen to an ‘extreme bear’ reading, triggering the first ‘buy’ signal for risk assets since June 2016,” they wrote in a note.
BofAML saw upside in Chinese and German stocks; US small cap stocks; semi-government debt; energy stocks; US dollar and euro high-yielding bonds and emerging market currencies.
The latter had already received a boost from news Sino-US trade talks were back on, as well as a natural bounce from the wild “flash crash” that rocked markets last week.
The effect was apparent in the Australian dollar, which is often used as a liquid proxy for emerging markets and China risk. The Aussie was up at US$0.7117 today, having briefly dived as deep as US$0.6715 last Thursday.
The safe-haven yen gave up much of its recent gains to stand at 108.40 per dollar, having gotten as a far as 105.25 last week. The euro was firmer US$1.1409, while the dollar index eased a touch to 96.114.
Gold benefited from the diminished risk of US rate hikes and held at US$1,284.83, just off a six-month top.
Oil prices started firmer after Brent bounced about 9.3 per cent last week, while WTI rose 5.8 per cent.
The crude benchmark rose 25 cents to US$57.31 a barrel, while US crude futures gained 24 cents to US$48.20. — Reuters
