In a turnaround from their recent slump, Asian shares saw a significant rebound on Thursday. The plunge in oil prices and softer U.S. labor data played a pivotal role in pulling Treasury yields away from their 16-year highs. However, the fate of this rally hangs in the balance as investors await the impending U.S. payrolls report.
Following the gains on Wall Street during the previous night, MSCI’s broadest index of Asia-Pacific shares outside Japan surged by 0.6%. Japan’s Nikkei was not far behind, posting a solid climb of 1.2%.
Hong Kong’s Hang Seng index also joined the upward trajectory with a 0.3% advance. Meanwhile, China’s mainland markets remained closed for holidays, keeping their influence on the regional landscape at bay.
The recent turmoil in Treasuries took a breather as a cooler-than-expected U.S. private payrolls report and a 5% dip in oil prices provided some relief for investors. The prevailing sentiment had been pessimistic, with the belief that interest rates would remain elevated for an extended period.
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Thursday saw ten-year yields ease by 2 basis points, settling at 4.7163%. This marked a continuation of their overnight retreat from the recent peak at 4.8840%, a 16-year high.
The fate of this rebound largely hinges on the U.S. non-farm payrolls data scheduled for release on Friday. Economists anticipate the creation of 170,000 jobs in September, down from 187,000 in August, with the jobless rate expected to tick lower from 3.8% to 3.7%.
The recent surge in yields has raised concerns about a significant tightening of financial conditions, potentially discouraging further interest rate hikes from the Fed. According to the CME FedTool, there’s now a 23% chance of a hike in November, down from 28% just a day ago.
The U.S. dollar, which had been on the rise, began to retreat, leading to a Wall Street rebound. The tech-heavy Nasdaq, in particular, saw gains of over 1% overnight.
The beleaguered yen also found some respite, rallying by 0.5% on Thursday, reaching 148.34 per dollar. Questions lingered about whether the sharp rebound from the 150 level on Tuesday was due to intervention from Japanese authorities.
Oil prices managed to recover on Thursday after a substantial 5% decline, bringing them back to levels reminiscent of the beginning of the year. Brent crude futures saw a 0.3% increase, reaching $86.10 per barrel.
