Asian shares rose and the dollar fell further on Thursday as investors welcomed more data pointing to an easing labor market that gives the Federal Reserve room to cut interest rates, with another key jobs report due later in the day.
Advances set another Wall Street record on a holiday-shortened day, while national elections in Britain and France are also on the radar in the coming days.
After a recent poor run for stocks, sentiment on the trading floor has eased this week thanks to data that showed the US labor market had tightened and inflation eased.
On Wednesday, data showed the private sector created fewer jobs than expected last month, while first-time and ongoing claims for jobless benefits also beat forecasts.
Also, a survey showed that activity in the services sector contracted in June at the fastest pace in four years.
US private hiring unexpectedly falls in June: ADP
All this followed Friday’s news that the personal consumption expenditures (PCE) index — the Fed’s preferred price gauge — had fallen further in May.
Adding to the feel-good factor were comments this week from Fed chief Jerome Powell, who said the fight against inflation had made “progress” and “substantial” work had been done to ease the labor market.
Markets are pricing in almost two rate cuts this year, starting in November.
But minutes from the central bank’s policy meeting in June showed officials remained wary of cutting too soon and wanted to see more evidence that prices were under control.
While inflation remains firm and moderates expectations, the decline in May “adds to our growing belief that price increases will not accelerate again from here,” said Henk-Jan Rikkerink, of Fidelity International.
βThe range of outcomes for the size of potential Fed rate cuts has narrowed significantly since the start of the year.
Asian markets watch Wall St hit records as Powell revives interest rate hopes
“We think the bar for the start of the cut cycle remains high, but recent progress on the inflation front has been encouraging.”
On Wall Street, the Dow closed slightly lower, but the S&P 500 and Nasdaq hit more record highs.
And gains were carried across most of Asia, with Tokyo, Hong Kong, Sydney, Seoul, Taipei, Manila and Jakarta rising.
Shanghai, however, bucked the trend again, with traders still questioning the state of the world’s number two economy.
Zhiwei Zhang at Pinpoint Asset Management warned “people do not have strong confidence in the economic outlook. Stronger policy support would help, both on the monetary and fiscal fronts. China has a high real interest rate and a conservative fiscal stance for now “.
And Thomas Mathews of Capital Economics said there were concerns among Chinese investors domestically and globally, and while they could ease over time, “Chinese stocks look set to run their course for a little while longer.”
Euro raises concerns over French election
The dollar fell further against its major peers after the jobs reading, with the euro getting some help from news that more than 200 centrist and left-wing candidates dropped out of Sunday’s second round of French parliamentary elections in an attempt to defeat the extreme right.
President Emmanuel Macron hopes the move will unify the vote and prevent Marine Le Pen’s far-right National Rally (RN) from winning power after seeing huge gains in Sunday’s first round.
But analysts warned that the country — the second-largest economy in the European Union — could be headed for a period of political deadlock if there is no overall winner in the polls.
The pound enjoyed support ahead of Thursday’s general election, which is expected to see the opposition Labor Party win a narrow victory over the ruling Conservatives after 14 years in government.
Keys around 02:30 GMT
The US Fed’s favored measure of inflation eases slightly in May
Tokyo – Nikkei 225: UP 0.2 percent at 40,666.78 (break)
Hong Kong – Hang Seng Index: UP 0.2 percent at 18,015.49
Shanghai Composite: DOWN 0.2 percent at 2,975.23
EUR/USD: UP at $1.0792 from $1.0786 on Wednesday
GBP/USD: UP at $1.2752 from $1.2737
Dollar/yen: DOWN at 161.37 yen from 161.52 yen
Euro/pound: DOWN to 84.63 pence from 84.65 pence
West Texas Intermediate: DOWN 0.5% to $83.47 a barrel
North Sea Brent crude: DOWN 0.5% to $86.94 a barrel
New York – Dow: DOWN 0.1 percent at 39,308.00 (close)
London – FTSE 100: UP 0.6 per cent at 8,171.12 (close)
Source: AFP