Asian stock markets surged on Friday, marking a third consecutive week of gains, while the dollar maintained stability amidst indications of a improving U.S. labor market, fueling optimism about potential interest rate cuts this year ahead of the release of crucial inflation data.
The sterling remained stable at $1.2515 after hitting a more than two-week low of $1.2446 on Thursday following the Bank of England’s (BoE) signal of potential rate cuts as early as next month.
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed by 0.66%, poised for nearly a 1% weekly gain, marking its third straight week of upward momentum. Japan’s Nikkei also recorded a 0.37% increase.
However, Chinese stocks faced downward pressure, with blue-chip shares declining by 0.28%, influenced by geopolitical concerns triggered by the Biden administration’s issuance of a trade restriction list and potential new tariffs on China. Conversely, Hong Kong’s Hang Seng Index surged by 2%, reaching an eight-month high during early trading.
The positive sentiment extended to Europe, with Eurostoxx 50 futures rising by 0.14%, German DAX futures up by 0.19%, and FTSE futures climbing by 0.45%.
The latest U.S. labor market data revealed that initial claims for state unemployment benefits increased by 22,000 to 231,000 for the week ending May 4, surpassing expectations. This follows last week’s report showing a slowdown in U.S. job growth in April, along with a decrease in annual wage growth.
Ryan Brandham, head of global capital markets, North America at Validus Risk Management, noted signs of softening in the U.S. labor market after a period of strength and resilience.
Market attention is now focused on the April U.S. producer price index and consumer price index scheduled for release next week, as they could provide insights into the direction of inflation, crucial for the Federal Reserve’s policy decisions.
In contrast to the U.S., market expectations for rate cuts in Europe have risen, with the Bank of England Governor Andrew Bailey suggesting the possibility of more rate reductions than initially anticipated. This divergence in rate outlooks has impacted currency markets, with the dollar remaining subdued, while the euro maintains its upward trajectory against the dollar.
Oil prices saw an uptick, with U.S. crude rising by 0.68% to $79.80 per barrel and Brent reaching $84.38, up by 0.6% for the day. Meanwhile, spot gold added 0.3% to $2,353.95 per ounce.
Amidst these developments, investors are closely monitoring currency movements, especially the yen, following suspected interventions by Japanese authorities aimed at curbing its depreciation. The yen traded at 155.71 per dollar, with Japan’s Finance Minister Shunichi Suzuki reiterating warnings against disorderly currency movements and affirming readiness to take action if necessary.