Hong Kong Shares Lead Asia Higher, Oil Rally Halts: Markets Wrap

This content was published on October 4, 2024 - 06:25

5 minutes

(Bloomberg) — Hong Kong stocks led gains among Asian equities ahead of US jobs data that will identify the path ahead for interest rates. A rally in oil prices halted after the commodity had its biggest one-day jump in almost a year.

Equities in Japan and South Korea advanced while stocks in Australia dropped. Markets in mainland China were shut for a holiday. A gauge of Chinese shares in Hong Kong advanced as traders assessed its recent rally’s sustainability and await details of fiscal stimulus and holiday spending. Futures contracts for the S&P 500 and Nasdaq 100 rose.

An index of dollar declined marginally, but is still poised for the biggest weekly gain in nearly six months as traders pared back expectations for aggressive US rate cuts. Treasuries were flat in Asian trading after selling off on Thursday, increasing yields to levels not seen since September.

West Texas Intermediate and Brent crude eased slightly after each rose more than 5% to a one-month high on Thursday. Earlier gains came after puzzling comments from President Joe Biden, who told reporters the US was discussing whether to support potential Israeli strikes against Iranian oil facilities.

Investors are concerned that, should Israel strike critical Iranian assets, the Islamic Republic will lash out and escalate the conflict, dragging in more countries and potentially disrupting global energy shipments. Israel said it bombed more than a dozen Hezbollah targets in Beirut on Thursday.

“The market fear is that there could be supply disruptions coming out of Iran,” said Tai Hui, chief Asia market strategist for JPMorgan Asset Management, on Bloomberg Television. “Demand for oil should remain healthy, but at the same time the risk to the supply side is very much there.”

The yen strengthened and the pound steadied after falling sharply against the dollar the prior day on signs the Bank of England may cut rates more aggressively. Japan’s Prime Minister Shigeru Ishiba instructed his cabinet on Friday to draw up a package of economic measures in a show of support to inflation-hit voters ahead of a general election.

Meanwhile, Beijing’s stimulus package has unleashed a wave of buying since last week, with the pace of gains the fastest since November 2008. Strategists at HSBC Holdings Plc and BlackRock Inc. are among Wall Street heavyweights turning bullish on the once beaten-down market. The initial euphoria, however, is cooling as traders take profit and await details of fiscal stimulus and data on holiday spending for further confidence.

Amid all the geopolitical uncertainty, investors are looking for further signals on the health of the US economy, with the monthly payrolls report due on Friday. The unemployment rate is forecast to hold steady at 4.2% in September while payrolls are expected to rise by 150,000.

“If the unemployment rate ticks up, I wouldn’t be surprised that markets would shift back toward expecting 50 basis points and then it is a question of how the Fed may react,” Kallum Pickering, chief economist at Peel Hunt, said on Bloomberg Television.

Other economic signs showed robustness in the US economy. The Institute for Supply Management’s index of services posted its best reading since February 2023, ahead of Wall Street estimates. Applications for US unemployment benefits rose slightly last week to a level that is consistent with a limited number of layoffs. Continuing claims, a proxy for the number of people receiving benefits, were little changed from the previous week.

“The bias in USD/Asia pairs in the near-term is correspondingly for further upside,” Alvin T. Tan, head of Asia FX strategy at RBC Capital Markets, writes in a note. “The backdrop is getting better for USD amid improving economic dataflow.”

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