SYDNEY (Reuters) – Asian shares were set for a rousing start on Monday as a dovish turn by the Federal Reserve and startlingly strong U.S. jobs data soothed some of the market’s worst fears about the global outlook.
FILE PHOTO – A man looks at a stock quotation board outside a brokerage in Tokyo, Japan, April 18, 2016. REUTERS/Toru Hanai
Investors are keen to see how Chinese markets react to the central bank’s policy easing announced late on Friday, which frees up around $116 billion for new lending.
Chinese officials also meet their U.S. counterparts for trade negotiations starting later Monday, the first face-to-face talks of the year.
U.S. President Donald Trump said on Sunday that the talks were going very well and that weakness in the Chinese economy gave Beijing a reason to work toward a deal.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.4 percent in early trade, led by a 1.1 percent jump in Australia .
Nikkei futures JNIc1 NKc1 pointed to opening gains of around 500 points for the cash index .N225. E-Mini futures for the S&P 500 ESc1 edged up another 0.14 percent.
Risk appetite got a huge boost on Friday when the U.S. payrolls report showed 312,000 net new jobs were created in December, while wages rose at a brisk annual pace of 3.2 percent.
Despite the strength, Federal Reserve Chairman Jerome Powell sought to ease market concerns about the risk of a slowdown, saying the central bank would be patient and flexible in policy decisions this year.
Markets had already gone much further to price in a major chance of a cut in rates this year, and some of that exuberance was tempered by Powell’s emphasis on the word “patient” in his speech on Friday.
Yet, Fed fund futures still implied a rate of 2.33 percent by December <0#FF:>, compared to the current effective rate of 2.40 percent.
Yields on two-year Treasuries US2YT=TWEB rose to 2.49 percent, from a trough of 2.37 percent, but were still below those on one-year paper.
Powell has another speech on Thursday to expand on his thinking, while there are at least eight other Fed officials scheduled to speak this week.
The combination of a strong jobs report and a dovish Fed helped the Dow .DJI end Friday with gains of 3.29 percent, while the S&P 500 .SPX jumped 3.43 percent and the Nasdaq .IXIC 4.26 percent.
Analysts at Bank of America Merrill Lynch noted global equity markets had lost $19.9 trillion since January last year, and a record $84 billion had flowed out of stocks in just the past six weeks.
With 2,055 of 2,767 U.S. and global companies in a bear market, it might be time to buy.
“Our Bull & Bear Indicator has fallen to an ‘extreme bear’ reading, triggering the first ‘buy’ signal for risk assets since June 2016,” they wrote in a note.
BofAML saw upside in Chinese and German stocks; U.S. small cap stocks; semi-government debt; energy stocks; U.S. dollar and euro high-yielding bonds and emerging market currencies.
The latter had already received a boost from news Sino-U.S. trade talks were back on, as well as a natural bounce from the wild “flash crash” that rocked markets last week.
The effect was apparent in the Australian dollar, which is often used as a liquid proxy for emerging markets and China risk. The Aussie was up at $0.7117 AUD=D3 on Monday, having briefly dived as deep as $0.6715 last Thursday.
The safe-haven yen gave up much of its recent gains to stand at 108.40 per dollar JPY=, having gotten as a far as 105.25 last week. The euro was firmer $1.1409 EUR=, while the dollar index .DXY eased a touch to 96.114.
Gold benefited from the diminished risk of U.S. rate hikes and held at $1,284.83 XAU=, just off a six-month top.
Oil prices started firmer after Brent bounced about 9.3 percent last week, while WTI rose 5.8 percent.
The crude benchmark LCOc1 rose 25 cents to $57.31 a barrel, while U.S. crude futures CLc1 gained 24 cents to $48.20.