Shares and bonds rallied across Asia on Thursday as investors weighed fresh US economic data and comments from Federal Reserve officials for clues about whether interest rates will be raised this month.
Japan’s government bond yields retreated from historic highs, while US Treasury yields also eased overnight. The moves followed a recovery in bond prices as markets assessed the prospect of tighter monetary policy and the impact of weaker labour-market indicators.
Investors’ immediate focus is Friday’s US non-farm payrolls report, after private-sector employment data for August fell short of expectations. Federal Reserve governor Christopher Waller is also due to speak, with markets watching for any indication of the central bank’s next move.
Expectations of a rate increase have risen sharply in recent days. Traders now see roughly a two-in-three chance of a 25-basis-point increase this month, compared with a probability of about 37% a week earlier, according to CME Group’s FedWatch tool.
John Williams, president of the Federal Reserve Bank of New York, said on Wednesday that higher long-term bond yields reflected a solid economy. He added that he was still gathering information before reaching a view on the next monetary policy decision.
The prospect of higher borrowing costs had pushed government bond yields across major economies to multi-year highs, raising concerns about fiscal pressures and the potential impact on economic growth. The yield on the benchmark US 10-year Treasury note fell by almost one basis point to 4.784%.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%, following modest gains on Wall Street. The yen strengthened 0.07% to 158.59 against the dollar, extending a 0.9% advance in the previous session, while the dollar index slipped 0.05%.
Markets were also monitoring tensions in the Middle East, after the United States and Iran exchanged their largest barrage of attacks since July. Oil prices edged lower from elevated levels, with US crude down 0.3% at 90.74 US dollars a barrel and Brent crude down 0.44% at 95.21 dollars.
Attention will also turn to meetings of the European Central Bank and the Bank of Japan as investors assess how major central banks may respond to persistent inflation pressures. Data showing that Japan’s services sector expanded at its fastest pace in five months in August added to evidence of a resilient economy.
