Asia shares lifted by Fed pause bets; China real estate retreats

By Kevin Buckland

TOKYO (Reuters) – Asia-Pacific equities rose to their highest level since mid-February on Friday, taking cues from an overnight Wall Street rally as market bets firmed for the Federal Reserve to skip a rate increase next week.

Japanese and Australian bond yields followed those on U.S. Treasuries lower, and the dollar struggled to rise from a two-week trough.

MSCI’s broadest index of Asia-Pacific shares added 0.6%, and at one point touched its strongest level since Feb. 16.

Much of that was driven by a 2% jump in Japan’s Nikkei, which rebounded strongly after its plunge from a 33-year high in the previous session.

Chinese stocks were relative underperformers, with Hong Kong’s Hang Seng up a more muted 0.26%.

Mainland blue chips were nearly flat, struggling under the weight of a 2.3% slide for property shares. The sector had soared 7.3% over the past week on speculation of impending stimulus from Beijing, which has yet to materialise.

On Wall Street overnight, gains were led by the tech-heavy Nasdaq, which surged 1.27%. The broader S&P 500 rose 0.62%. E-mini U.S. equity futures in Asia pointed to about a 0.1% lower restart for each of the indexes.

Traders now lay 73% odds for the Fed to keep rates steady on June 14, versus 27% probability of a quarter-point increase. However, the market sees an increase as mostly assured by the July 26 decision, putting the chance at about 80%.

Bets for a pause were supported by data overnight showing the number of Americans filing new jobless claims surged to a more than 1 1/2-year high.

Still, some analysts point to surprise rate increases at the Bank of Canada and Reserve Bank of Australia this week as reasons not to be complacent.

I wouldn’t go all in and say we’re going to get a rate hike, but I think we should be at least 50% priced,” said Tony Sycamore, an analyst at IG Markets in Sydney.

I know people can point to Fed Chair (Jerome) Powell’s comments as being more supportive of a hold than a hike, but there have been some interesting developments since he last spoke,” Sycamore added. “I can’t imagine he’d be happy by the increase in core PCE inflation, nor the robust gain in non-farm payrolls.”

Powell said on May 19 that it was still unclear if U.S. interest rates will need to rise further, and the risks of overtightening or undertightening had become more balanced.

Two-year Treasury yields, which are extremely sensitive to monetary policy expectations, were little changed at around 4.53% in Tokyo after a 3 basis-point (bp) decline by the New York close. The 10-year yield edged up to 3.73% after tumbling 7 bps overnight.

The U.S. dollar index, which measures the currency against a basket of six major peers, rebounded 0.09% to 103.41, but still close to the low of 103.29 reached on Thursday, a level last seen on May 23.

The dollar added 0.3% to 139.355 yen, after earlier slipping to a one-week low of 138.765.

The euro was about flat at $1.0777, just below Thursday’s two-week high of $1.0787.

Elsewhere, the Turkish lira extended its decline to a new record low of 23.54 per dollar, even as President Tayyip Erdogan’s appointment of a U.S. banker as central bank chief sent a fresh signal for a return to more orthodox policy.

Erdogan had last week put well-regarded former finance minister Mehmet Simsek back in the post, and Simsek said this week that the guiding principles in the economy will be transparency, consistency, accountability and predictability.

The market needs to see it to believe it,” said Rodrigo Catril, senior currency strategist at National Australia Bank. “Investors are choosing to shoot first and ask questions later.”

Leading cryptocurrency bitcoin briefly dipped by 0.83% before recovering to be little changed at $26,484 after Binance, the world’s biggest cryptocurrency exchange, said it was suspending dollar deposits and would soon pause fiat withdrawal channels as a result of the U.S. Securities and Exchange Commission (SEC)’s crackdown.

Crude oil remained on the back foot on Friday after a report that the United States and Iran were close to a nuclear deal, although denials from both parties kept it off the previous session’s lows.

Optimism for a deal, which reportedly included scope for an additional 1 million barrels per day of Iranian production, had knocked down West Texas Intermediate (WTI) crude by $3.50 to just shy of $69 at one point on Thursday.

WTI futures were last 58 cents weaker than Thursday’s close at $70.71. Brent crude futures were off 57 cents at $75.39.

(Reporting by Kevin Buckland; Editing by Stephen Coates and Gerry Doyle)