Asian Stocks Rise for Third Week, Dollar Steady as US Labor Market Shows Signs of Easing
Asian stocks rose on Friday, extending their gains for a third consecutive week, as fresh signs of an easing US labor market fueled optimism around potential interest rate cuts this year. The dollar remained steady ahead of next week's crucial inflation data.
The MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.66%, on track for a nearly 1% gain for the week. Japan's Nikkei also edged higher by 0.37%.
In China, blue-chip shares dipped 0.28% amid geopolitical concerns following a trade restriction list issued by the Biden administration and potential new China tariffs. However, Hong Kong's Hang Seng Index surged 2%, reaching an eight-month high in early trading.
The positive sentiment is expected to continue in Europe, with Eurostoxx 50 futures, German DAX futures, and FTSE futures all pointing towards gains.
Data released on Thursday showed that US initial claims for state unemployment benefits unexpectedly increased by 22,000 to a seasonally adjusted 231,000 for the week ended May 4. This follows last week's report indicating slower-than-expected US job growth in April and a decline in annual wage growth below 4.0% for the first time in nearly three years.
"After a period of remarkable strength and resilience, signs are growing that the US labor market may be starting to soften," said Ryan Brandham, head of global capital markets, North America at Validus Risk Management.
Markets are now eagerly awaiting April's US producer price index and consumer price index data next week, hoping for further signs that inflation is trending downwards towards the Fed's 2% target rate.
Previously, hotter-than-expected inflation reports had dashed hopes of near-term interest rate cuts, with markets fully pricing in a cut only in November. However, the latest labor market data has shifted expectations, with markets now assigning a 50-50 chance of a BoE cut in June and almost fully pricing in a cut for August. Additionally, markets now imply an 88% chance of an ECB easing in June.
The shifting expectations around US rates have kept the dollar relatively stable, with the euro holding onto most of its overnight gains. The single currency is on track for its fourth consecutive week of gains against the dollar.
Meanwhile, the yen remains in the spotlight after last week's suspected interventions by Japanese authorities totaling nearly $60 billion, aimed at pulling the yen off its 34-year lows. On Friday, the yen traded at 155.71 per dollar, with Japan's Finance Minister Shunichi Suzuki reiterating Tokyo's readiness to take action against disorderly currency movements.
In commodities, oil prices rose, with US crude up 0.68% to $79.80 per barrel and Brent at $84.38, up 0.6% on the day.