The European Central Bank (ECB) delivered a well-telegraphed
rate cut on Thursday, a day after the Bank of Canada became the first G7 nation
to trim its key policy rate.
The two join Sweden’s Riksbank and the Swiss National Bank
in beginning their respective monetary easing cycles, breathing new life into
the global risk rally and as bets grow that the Fed could also cut rates in
September.
“You’ve got two of the G7 cutting rates … it certainly opens
the door further to the Fed,” said Tony Sycamore, a market analyst at IG. “We’re
not in the home straight, but we’ve certainly rounded the corner.
MSCI’s broadest index of Asia-Pacific shares outside Japan
rose 0.2% and was on track to end the week nearly 3% higher, though some of its
gains were capped by a selloff in Chinese stocks.
Europe looked set to extend the positive momentum, with
EUROSTOXX 50 futures advancing 0.02% while FTSE futures gained 0.17%. S&P
500 futures were up 0.1%, with Nasdaq futures adding 0.16%.
Market moves were largely subdued as traders stayed on guard
ahead of Friday’s U.S. nonfarm payrolls report, where expectations are for the
world’s largest economy to have added 185,000 jobs last month.
“If we did get a little softer data tonight … We could see
10-year Treasury yields pushing down towards the 4% level,” said Rob Carnell,
ING’s regional head of research for Asia-Pacific.
“Equities, in all likelihood, would rally strongly on that,
and that would reflect across the region. You’ll likely see the dollar losing a
little bit of strength from that.”
The benchmark 10-year U.S. Treasury yield was last firm at
4.3005%, while the two-year yield rose slightly to 4.7421%, after having
clocked six straight sessions of declines on Thursday.
The decline In yields has come on the back of renewed
expectations of imminent Fed rate cuts, following a slew of data this week
which pointed to an easing of labour market conditions in the United States.
Markets are now pricing in roughly 50 basis points of easing
from the Fed this year.
Elsewhere, the dollar languished near an eight-week low
against a basket of currencies, and was headed for a weekly loss of more than
0.5%.
The euro rose 0.05% to $1.0895, extending its slight gain
from the previous session as the ECB raised its inflation forecasts and kept
investors in the dark over how soon subsequent rate cuts could come.
“The ECB nudged up its projections for core and headline
inflation … This implies that policymakers might feel slightly less inclined to
cut interest rates further,” said Andrew Kenningham, chief Europe economist at
Capital Economics. “Changes to the policy statement were also slightly hawkish.”
RISING TENSIONS
China, however, was left out of the global risk rally on
Friday, after a group of Republican lawmakers said that Chinese battery
companies with ties to Ford and Volkswagen should be banned from shipping goods
to the U.S., according to a Wall Street Journal report.
That sent Chinese blue chips falling 0.8%, while Hong Kong’s
Hang Seng Tech index slid more than 1.6%.
The Hang Seng Index declined 0.5%.
The negative headlines overshadowed Friday’s data which
showed China’s exports grew more quickly and for a second month in May,
offering some relief to the economy as it battles to mount a durable recovery.
Japan’s Nikkei similarly fell 0.26%, as traders also stayed
cautious ahead of the Bank of Japan’s monetary policy meeting next week, where
the central bank is expected to embark on a tapering of its bond buying scheme.
Against the dollar, the yen steadied at 155.66.
“Based on various reports on the BOJ, we anticipate further
policy guidance on its quantitative easing programme from as early as the June
BOJ meeting, with a greater focus on the tapering of bond purchases compared to
balance sheet contraction,” said Carl Ang, fixed income research analyst at MFS
Investment Management.
Japanese household spending rose for the first time in 14
months in April from a year earlier, data showed on Friday, although the tepid
growth showed consumers remained reluctant to loosen their purse strings in the
face of higher prices.
In commodities, oil prices rose, with Brent crude futures up
0.25% at $80.07 a barrel while U.S. West Texas Intermediate crude futures
gained 0.29% to $75.77 per barrel.
Spot gold edged 0.3% higher to $2,382.55 an ounce.