Asian shares firmed on Thursday thanks to stronger US economic data, while growing prospects of a near-term US rate hike and possible tapering of stimulus in Europe hit gold and lifted the dollar to one-month highs versus the yen. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4 per cent while Japan’s Nikkei gained 0.6 per cent. On Wednesday, US S&P 500 Index gained 0.43 per cent, led by banks and energy companies.
US services sector activity recovered sharply in September from six-year low hit in August, following similarly upbeat news from US factories on Monday. “Both manufacturing and service indexes recovered from big falls in August. While it is not clear what the underlying US economic trend is, given the recovery in Japanese and Chinese surveys the global economic cycle appears to be rebounding for now,” said Chotaro Morita, chief bond strategist at SMBC Nikko Securities.
Growing optimism on the US economy boosted bets that the US Federal Reserve will raise interest rates in December. The policy-sensitive two-year US note yield hit a four-month high of 0.857 per cent on Wednesday.
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Interest rate futures are pricing in about a 60 per cent chance the Fed will hike by its December meeting.
The 10-year US Treasuries yield also rose to 1.706 per cent, compared to around 1.60 per cent at the start of week. A strong US payrolls report on Friday could cement expectations of a rate hike. The median forecast of economists polled by Reuters is for non-farm payroll to rise 175,000.
The rise in bond yields partly stemmed from speculation the European Central Bank may eventually taper its bond buying after Bloomberg reported on Tuesday the bank would probably wind down the monthly 80-billion euro ($90 billion) scheme.
Euro zone bond yields have picked up since then, with Germany’s 10-year Bund yield rising back to near zero percent from 2 1/2-month low of minus 0.16 per cent hit last week.
The spectre of tighter monetary policy in the US and Europe hit precious metals hard.
Gold extended losses, hitting a 3 1/2-month low of $1,262.2 per ounce and last stood at $1,267.4. Silver also fell to $17.69 after having fallen to $17.565 per ounce, its lowest since late June.
In the currency market, the dollar rose to a one-month high of 103.67 yen and last stood at 103.37 yen.
The British pound recovered slightly after hitting a three-decade low of $1.2686 on Wednesday on worries about Britain’s EU exit. It last traded at $1.2747.
The euro was little changed at $1.1209, with pressure from concerns about the health of Deutsche Bank offset by speculation about the ECB’s tapering.
Oil prices rose to their highest since June on a combination of the fifth unexpected weekly drawdown in US crude inventories and hopes that major producers will agree to cut output next month.
The US Energy Information Administration said crude stockpiles fell 3 million barrels last week, well below the build of 2.6 million barrels forecast by analysts in a Reuters poll.
International benchmark Brent futures rose to as high as $52.09 per barrel on Wednesday, the highest since early June and last stood at $51.53, up 5 per cent so far this week.
US crude futures traded at $49.50, down 0.6 per cent on the day but up 2.6 percent on the week.
“Markets are hoping that they will not just agree on a cut next month but will also come up with a series of cuts in the future,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
“But unless we have more evidences of cooperation, it is hard to see oil prices rising much further.”