Wall Street awaits Fed cut signals. The MSCI ACWI Index, which tracks both emerging and developed equities, headed for a ninth day of increases — the longest run of gains since December. Shares advanced in Japan, South Korea and Australia while those in China slipped.
The bullish momentum was fueled by an upbeat mood in the US, where the S&P 500 climbed for an eighth straight day. A gauge of Asian currencies touched the highest since January as the dollar held its recent losses, while oil steadied after the US said Israel accepted a cease-fire proposal in Gaza.
Bets for an imminent Fed easing are propping up equity markets, with investor allocations still robust despite a bout of recent volatility and heightened uncertainty around the economy. The MSCI Asia Pacific Index has gained in all but two sessions since 6 August, underscoring expectations that US policymakers are likely to cut interest rates in September.
“What we’ve seen happen is a swathe of recent data, which has eased fears about slowing US growth without stoking fears of re-accelerating inflation,” said Kyle Rodda, a senior market analyst at Capital.Com Inc. That’s benefiting Asia ex-Japan equities, “with a weaker dollar supporting financial conditions and risk appetite,” he added.
In Australia, the central bank signalled it will likely need to hold interest rates at their current 12-year high for an “extended period” to ensure that inflation returns to its target band next year. Meanwhile, Chinese banks kept their benchmark lending rates unchanged for August, as profit margins came under pressure and policymakers focused on the health of financial institutions.
Treasury 10-year yields were little changed while contracts for US equities eked out a gain. Gold was steady near a record high as traders await Fed Chair Jerome Powell’s speech on Friday.
Stock volume has been trending lower since the trading surge during the early-August selloff with traders reluctant to place big bets ahead of the Fed’s Jackson Hole economic symposium this week. Central bankers gathering for one of the world’s most prominent annual economic forums are set to find themselves more divided than perhaps any time since before the pandemic.
Equity positioning is back up to moderately overweight, a week after sliding to underweight, according to Deutsche Bank AG strategists including Parag Thatte and Binky Chadha, who said exposure remains well below the mid-July highs at the top of the historical band.
Over in Europe, increasing risks to the growth outlook have reinforced the case for a policy adjustment when the European Central Bank meets next month, according to Governing Council member Olli Rehn.
On the corporate front, Alimentation Couche-Tard Inc.’s preliminary proposal to buy 7-Eleven owner Seven & i Holdings Co. could be worth more than ¥5.63-trillion ($38.4-billion), based on the Japanese company’s market value after news of the potential deal was disclosed.