Asian markets bounce with Wall St as US data fans rate-cut bets

World markets are enjoying a Santa Claus rally as investors grow increasingly optimistic about Federal Reserve rate cuts next year – Copyright AFP ULISES RUIZ

Asian markets pressed ahead with their rally Friday as another round of US data further stoked expectations that the Federal Reserve will cut interest rates more than it has indicated next year.

Equities have been on an upward trajectory in recent weeks as a string of figures show inflation coming down and the jobs market softening, while the economy is easing but appears safe from recession.

The surge suffered a blip in the middle of the week as traders took a breather, with analysts saying the advance may have gone a little too fast, but they were back on their horse Friday following a strong run-up on Wall Street.

That came on the back of data showing that the US economy grew slightly less than first thought in the third quarter.

The readings were “in line with the narrative that a cooling economy will keep the Fed on track to cut rates in the not-too-distant future”, Chris Larkin, at E*Trade from Morgan Stanley, said.

“That sentiment has played a big role in the market’s recent surge.”

Focus is now on the release of the closely watched personal consumption expenditures (PCE) price index, decision-makers’ preferred gauge of inflation, which could be key for the Fed’s meeting next month.

Bank officials sent markets racing last week when they held rates and released their “dot plot” forecast for rates suggesting they would cut several times next year, but observers said investors were confident that more than that are in store.

Traders are betting on about 150 basis points of reductions, according to Bloomberg News, twice as much as policymakers have indicated.

All three main indexes on Wall Street rose Thursday, with the Nasdaq and S&P 500 piling on more than one percent, and analysts said the fact that trades are still snapping up stocks when they were overbought was a good sign for the market outlook.

Asia built on the US lead as investors in most cities wind down for the Christmas break.

Tokyo, Hong Kong, Sydney, Seoul, Singapore, Seoul, Wellington, Taipei, Manila and Jakarta were all well up, though Shanghai dipped.

The dollar edged up marginally after dropping against its major peers Thursday in reaction to the latest data.

“If recent trends hold, stocks are poised for an upward trajectory in the typical ‘Santa Claus Rally’,” said SPI Asset Management’s Stephen Innes.

“However, given the substantial gains that have already transpired, investors may find themselves content with the early Santa stocking stuffer rather than risk the proverbial lump of coal if the US PCE data comes in hotter than expected.”

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 0.2 percent at 33,204.89 (break)

Hong Kong – Hang Seng Index: UP 0.5 percent at 16,702.18

Shanghai – Composite: DOWN 0.2 percent at 2,913.79

Dollar/yen: UP at 142.46 yen from 142.14 yen on Thursday

Euro/dollar: DOWN at $1.1000 from $1.1013

Pound/dollar: DOWN at $1.2685 from $1.2690

Euro/pound: DOWN at 86.70 pence from 86.76 pence

West Texas Intermediate: UP 0.7 percent at $74.41 per barrel 

Brent North Sea crude: UP 0.7 percent at $79.93 per barrel 

New York – Dow: UP 0.9 percent at 37,404.35 (close)

London – FTSE 100: DOWN 0.3 percent at 7,694.73 (close)