The shifting Fed expectations lifted oil prices and dragged
Treasury yields to their lowest in two months after data this week hinted the
U.S. labour market was easing.
MSCI's broadest index of Asia-Pacific shares outside Japan
was 1.14% higher, led by tech stocks. The index was on course for a 2.7% gain
in the week and snap its two-week losing streak. Japan's Nikkei rose 1%.
China stocks also gained, with the blue-chip index up 0.38%,
while Hong Kong's Hang Seng index added 0.81%.
Indian stocks were poised for a muted start to the session
in a turbulent week after Prime Minister Narendra Modi was formally named to
lead a new coalition government for a third straight term.
Modi will for the first time head a government dependent on
the support of regional allies whose loyalties have wavered over time, which
could complicate the new cabinet's reform agenda and has unnerved some
investors.
On Wednesday, the S&P 500 and Nasdaq indexes hit record
closing highs, with AI darling Nvidia becoming the world's second-most valuable
company after breaching market valuation of $3 trillion and overtaking Apple.
The May private payrolls report on Wednesday was the latest
data to suggest an easing in the labour market and comes after a report on
Tuesday showed job openings fell in April to the fewest in more than three
years.
Markets have taken their cue from the labour data this week
and are now pricing in 49 basis points of cuts from the Fed this year, with a
rate cut in September at 69% chance compared with 47.5% a week earlier, CME
FedWatch tool showed.
"We're still in the Goldilocks range so bad economic
news has been good for equities as Fed rate cuts are back on the table,"
said Ben Bennett, Asia-Pacific investment strategist at Legal And General
Investment Management.
Investor focus is now on the nonfarm payroll report for May
due on Friday, with a Reuters poll of economists expecting it to increase by
185,000 jobs.
"We need that to be around 100-150k to maintain the
Goldilocks narrative," Bennett said. "Much higher than that and
yields could move back up, but if we get zero or negative, then we could be
talking about a hard landing again."
Benchmark 10-year note yields were last at 4.2929% in Asian
hours. On Wednesday the yields fell to as low as 4.2750%, the lowest since
April 1.
In the currency market, the dollar was broadly lower, with
the yen strengthening to 155.445 per dollar, close to a more than two-week high
of 154.55 touched on Tuesday.
The euro was up 0.2% at $1.089025, not far from the
two-and-a-half month high it touched on Tuesday ahead of the ECB meeting that
will kick off a fresh round of central bank policy reviews, with the Fed and
the Bank of Japan due to meet next week.
The ECB is all but certain to cut interest rates from record
highs on Thursday and is likely to acknowledge it has made progress in its
battle against inflation, but also stress that the fight is not yet over.
Investor focus will be on comments and the economic
projection to gauge what comes after the expected rate cut. Markets are pricing
in 64 basis points of cuts this year.
Charu Chanana, head of currency strategy, said the key risk
going into the meeting is if the ECB hawks fall short of the high bar or signal
further rate cuts in a clear manner.
"The market can perceive this to be a policy mistake as
a series of rate cuts can potentially exacerbate inflation in the medium
term."
The Bank of Canada trimmed its key policy rate on Wednesday,
the first G7 country to do so, in a widely expected move, but indicated further
easing would be gradual and dependent on data.
In commodities, Brent crude futures rose 0.48% to $78.79 a
barrel, while U.S. West Texas Intermediate crude futures rose 0.66% to $74.55.