By Tom Westbrook
SINGAPORE (Reuters) – Asian stock markets hit new records on Friday as investors priced in U.S. interest rate cuts for September and sentiment was upbeat, while the euro hit a three-week high ahead of French elections.
Sterling was firm at $1.2767 as Britain’s Labour Party looked set for a landslide victory at the polls, returning them to power after 14 years of Conservative rule. Elsewhere, the dollar was marginally weaker and Treasury yields were marginally higher in Tokyo as trading resumed after the US Independence Day.
Japan’s Nikkei and the broader Topix both hit record highs, as did Taiwan’s benchmark.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 percent to a two-year high. Samsung expects second-quarter profit to rise 15-fold, which also helped lift South Korea’s KOSPI to a two-year high.
Singapore’s Straits Times index, which is heavily weighted towards banks and real estate, rose more than 3% in as many days, also reaching its highest level in two years.
“Global liquidity is still high and with the S&P (500) breaking ridiculous records lately…valuations elsewhere will at some point make a compelling enough case,” said Vishnu Varathan, chief economist at Mizuho in Singapore.
He noted that demand for artificial intelligence (AI) has fueled a surge in chip production in Taiwan and South Korea, that interest rates are generating record profits for major banks in Singapore and that the weak yen is supportive for Japanese stocks.
Japanese household spending unexpectedly fell in May, government data showed on Friday, complicating the outlook for interest rates, especially as one factor behind the decline is the weak yen that has limited consumers’ purchasing power.
The yen rose slightly to 160.9 per dollar. FTSE futures opened 0.3% higher on Friday and S&P 500 futures rose slightly, suggesting a new record for the cash index is in the offing later in the day.
JOBS IN FOCUS
US employment data tops the economic agenda on Friday, with a slowdown in hiring and a small increase in unemployment forecast, which would leave the door open for US rate cuts.
A series of subdued data, with the US ISM gauge of services activity falling to its lowest level since mid-2020 earlier this week, led markets to peg the probability of a rate cut in September at 73% and price in 47 basis points of cuts this year.
Yields on two-year US Treasuries rose 1.3 basis points to 4.71% in the Asian morning, while benchmark 10-year yields rose 2 basis points to 4.37%.
On currency markets, the euro rose to $1.0817 as polls suggest France’s far-right Party will fall short of an outright majority in Sunday’s parliamentary elections.
“If the polls ultimately prove correct, it means the more extreme measures of fiscal expansion and immigration curbs are unlikely to be implemented,” said MUFG analyst Michael Wan.
The Australian dollar hit a six-month high of $0.6738 as interest rate differentials moved in its favour. This was supported by bets that the next move in Australian yields could be higher as inflation proves stubborn. [AUD/]
In commodities trading, a weaker dollar is pushing gold toward its biggest weekly gain in a month, up 1.4% to $2,357 an ounce. Oil is at its most expensive since April, with Brent crude futures holding above $87 a barrel after a bigger-than-expected drop in U.S. crude inventories, suggesting robust demand as the U.S. summer season gets underway.
Bitcoin fell 2% to near a four-month low of $56,955.
(Edited by Jacqueline Wong)
