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Rising Bets on a September Fed Rate Cut

Overnight US labor market data set the tone for the Wednesday Asian session. According to the JOLTs Job Openings Report, job openings fell from 8.355 million to 8.059 million in April. The weaker-than-expected numbers fueled investor bets on a September Fed rate cut.

According to the CME FedWatch Tool, the probability of the Fed standing pat in September fell from 40.5% to 35.1%.

US Treasuries and equity markets reacted to the US labor market data. On Tuesday, 10-year US Treasury yields declined by 1.41%, extending the losing streak to four sessions. The Dow advanced by 0.36%. Furthermore, the Nasdaq Composite Index and the S&P 500 ended the session up 0.17% and 0.15%, respectively.

Nevertheless, Asian economic indicators also needed consideration early in the Wednesday Asian session.

Wage data from Japan may fuel speculation of a 2024 Bank of Japan interest rate hike. Q1 2024 GDP numbers from Australia fell short of expectations, supporting bets on a 2024 RBA rate cut. Service sector PMI numbers from China painted a rosier picture of the Chinese economy.

China Services PMI Sends Positive Signals for the Hang Seng Index

HSI 050624 Daily Chart

The China Caixin Services PMI increased from 52.5 to 54.0 in May. Economists forecast a PMI of 52.6.

According to the May survey,

• New business increased at the most marked rate in 12 months.
• Firms responded to rising demand by increasing staffing levels for the first time in four months.
• Upward prices for input materials, labor, and transport fueled input cost inflationary pressures.
• Firms reacted by increasing output prices at the most marked pace since January 2022.
• Optimism across the services sector weakened to a seven-month low despite the uptrend in new orders. Firms cited concerns about the global economic outlook and inflation.

The Chinese equity markets reversed early losses in response to the survey.

On Wednesday, the CSI 300 and the Shenzhen Composite Index advanced by 0.09% and 0.23%, respectively.

However, the Hang Seng Index enjoyed the added benefit of rising expectations of a September Fed rate cut. During the Wednesday Asian morning session, the Hang Seng Index was up 1.08%.

Real estate and tech stocks contributed to the early gains. The Hang Seng Mainland Properties Index (HSMPI) gained 0.10%, with the Hang Seng Tech Index (HSTECH) rallying 1.59%.

Alibaba (9988) and Tencent Holdings (0700) rallied 2.16% and 2.26%, respectively. Baidu (9888) advanced by 0.53%.

Nikkei Index Falls in Wage Growth and Yen Weakness

The Nikkei Index declined by 1.10% in the Wednesday morning session. USD/JPY trends and wage data from Japan impacted buyer demand for Nikkei-listed export stocks.

Average cash earnings increased 2.1% year-on-year in April after rising 1.0% in March. Overtime pay declined 0.60% after decreasing 0.50% in March. The jump in average cash earnings could support Bank of Japan discussions about a 2024 interest rate hike.

Better-than-expected Jibun Bank Services PMIs also needed consideration. The Jibun Bank Services PMI fell from 54.3 to 53.8, up from a preliminary PMI of 53.6.

Fast Retailing Co. Ltd. (9983) and Softbank Group Corp (9984) increased by 0.39% and 0.84%, respectively. Sony Group Corporation (6758) gained 0.34% in the morning session.

However, Tokyo Electron Ltd. (8035) and KDDI Corp. (9433) saw losses of 3.02% and 1.17%, respectively.

Banking and Tech Stocks Contribute to Early ASX 200 Gains

ASX200 050624 Daily Chart

The ASX 200 gained 0.28% during the Wednesday Asian morning session. Softer-than-expected Services PMI and Q1 2024 GDP numbers from Australia eased fears of a 2024 RBA rate hike, supporting buyer demand for ASX-listed stocks.

The Judo Bank Services PMI fell from 53.6 to 52.5 in May, down from a preliminary PMI of 53.1. Additionally, the Australian economy expanded by 0.1% in Q1 2024 after growing by 0.2% in Q4 2023.

Banking and tech stocks contributed to the gains. The S&P/ASX All Technology Index was up 0.51%.

ANZ Group Holdings Ltd. (ANZ) and National Australia Bank Ltd. (NAB) saw gains of 0.49% and 0.42%, respectively. Furthermore, Commonwealth Bank of Australia (CBA) and Westpac Banking Corp. (WBC) were up 0.83% and 0.37%, respectively.

However, gold spot (XAU/USD), iron ore, and WTI crude oil price trends impacted buyer demand for gold, mining, and oil stocks.

Gold-related stocks Northern Star Resources Ltd. (NST) and Evolution Mining Ltd (EVN) were down 1.08% and 2.06%, respectively.

Woodside Energy Group Ltd (WDS) and Santos Ltd (STO) declined by 0.42% and 0.40%, respectively.

Mining stocks BHP Group Ltd (BHP) and Rio Tinto Group Ltd. (RIO) saw losses of 1.14% and 1.31%, respectively. Additionally, Fortescue Metals Group Ltd. (FMG) declined by 1.25%.

For upcoming economic events, refer to our economic calendar.

This article was originally posted on FX Empire

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