Stocks on track for best week of 2023

Singapore — Stocks were headed for their biggest weekly rise in a year on Friday, while bonds rallied and the dollar was on the back foot as investors cheered a pause in US interest rate hikes.

US jobs data due later in the day is the next major focus.

Benchmark 10-year treasury yields are down more than 20 basis points (bps) in two sessions since the US Federal Reserve left rates on hold on Wednesday and chair Jerome Powell said risks to the outlook for rates settings was balanced.

Cash treasuries were untraded in Asia owing to a holiday in Japan, and 10-year futures held recent gains to imply yields were steady at 4.67%. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.9%.

S&P 500 futures were 0.1% lower, weighed by a 3% fall for Apple shares in post-market trade after the tech giant’s sales forecast fell short of expectations. European futures rose 0.4%.

World stocks are up 4.3% for the week so far, their largest weekly rise since November 2022.

“Markets have become increasingly confident that rates in the US have now peaked,” said ANZ analysts in a note.

“As logical as that is … Powell did warn that for higher bond yields to forestall another hike, they’d need to stay high, so markets can’t have their proverbial cake and eat it too.”

The US treasury department had also said on Wednesday that it would sell less longer-dated debt at auction than had been expected and a softer-than-forecast manufacturing survey helped reinforce bets that no further hikes are necessary.

On Thursday, the Bank of England also left interest rates on hold and stressed it did not expect to cut them any time soon.

Ten-year gilts had their sharpest rally in more than a month, sending yields almost 12bps lower to 4.39%. Ten-year German bund yields also fell on Thursday, though only by 4.6bps to 2.71%.

“It felt like there were a decent chunk of investors waiting on the sidelines and ready to play lower yields and yesterday removed a couple of potential stumbling blocks to enacting that view,” said Rabobank analysts.

Payrolls loom

In foreign exchange markets the Australian and New Zealand dollars look set to turn in their strongest weekly gains since July, with rises of 1.5% and 1.6% so far.

The Aussie, steady at $0.6413 on Friday, has been helped by a third-quarter inflation surprise that has traders betting on a rate hike from the Reserve Bank of Australia (RBA) on Tuesday and the kiwi is rising with the tide.

“From here on, Australian dollar’s downside may be limited as we expect the extensive set of policy support from Chinese authorities to help support the yuan and hence by extension, the Australian dollar,” said strategists at Singapore’s UOB.

“In addition, broad US dollar weakness as the Fed ends its rate hike cycle is likely to spur an Australian dollar-US dollar recovery.”

The next catalyst for currency movements is likely to be US jobs data. Economists polled by Reuters expect the US to have added 180,000 jobs in October.

The worst performing G10 currencies for the week have been the havens of Japanese yen and the Swiss franc as investors have sought out riskier assets.

The Bank of Japan (BoJ) will continue to dismantle its ultra-easy monetary policy next year, six sources familiar with the BoJ’s thinking told Reuters, though the slow progress has been cold comfort for a yen weighed down by Japan’s low interest rates.

It traded steady at ¥150.28 to the dollar on Friday. Brent crude futures are 3.7% lower on the week to $87.10 a barrel. Gold is down 1% at $1,986/oz.

Bitcoin, meanwhile, looks to be reviving momentum that had collapsed along with exchange FTX in 2022. FTX founder Sam Bankman-Fried was found guilty of stealing from customers on Thursday. There was no immediate market reaction, leaving Bitcoin to hold steep recent gains at $34,450.

Reuters