Japanese investors return from holiday to a global equity rebound, with the Federal Reserve reining in its interest-rate outlook seen as a boost for the stimulatory status quo. Bonds extended gains.
Futures on Japan’s Nikkei 225 Stock Average diverged, clouding the outlook for a market that missed out on Thursday’s 1.2 percent global stock surge. Meanwhile, contracts on other Asian indexes tipped more gains. While the dollar held losses most major currencies, it edged up versus the yen as traders digested the shift in the Bank of Japan’s approach to stimulus from Wednesday. New Zealand bond yields fell for a third straight day, while gold headed for its best week in almost two months. Oil pulled back from a two-week high as investors count down to next week’s producer talks in Algiers.
After Fed as Yen Edges Lower
Concern central banks were losing faith in the efficacy of loose monetary policy was put to rest -- for now -- as the Fed scaled back its tightening plans and Japan tweaked its stimulus focus this week. Indonesia cut rates for the fifth time this year, and policy makers in New Zealand signaled further reductions, fueling bets Europe will maintain its easing stance. The bullishness prompted former Fed Chairman Alan Greenspan to call the advance in Treasuries unsustainable, while Janus Capital Group’s Bill Gross said a bear market in government debt has been delayed. Ten-year Treasuries are trading at a two-week high.
“The markets will breathe a sigh of relief now that you’ve seen Japan and the U.S. come out,” Wayne Wilbanks, chief investment officer at Wilbanks Smith & Thomas Asset Management LLC in Norfolk, Virginia, which oversees about $2 billion, told Bloomberg Radio. “It’s clearer sailing and we’ll see a little less volatility going forward.”
A purchasing managers’ index on manufacturing is due in Japan Friday, Singapore updates consumer prices and Thailand reports on foreign reserves. Taiwan issues data on money supply.
Stocks
Futures on the Nikkei 225 were bid for 16,700 in the Osaka pre-market, down from 16,730 on Wednesday, while contracts on the index traded in Chicago fell 0.2 percent to 16,745 as of 8:43 a.m. Tokyo time, after jumping 1.6 percent in the previous session. Nikkei 225 futures listed in Singapore rose 1.1 percent to 16,720. The Japanese measure climbed 1.9 percent to its highest level since Sept. 9 on Wednesday, after the BOJ moved the focus of its stimulus efforts away from expanding money supply to controlling interest rates.
Futures on the S&P 500 Index were little changed at 2,167.25 after the U.S. benchmark increased 0.7 percent to a two-week high last session. New Zealand’s S&P/NZX 50 Index, the first major stock gauge to start trading each day, was little changed early Friday, leaving its advance in the week at 0.9 percent, the most since the end of July.
In Australia, futures on the S&P/ASX 200 Index -- with more than 15 percent of members raw materials producers -- gained 0.5 percent in most recent trade, amid a six-day rally in the Bloomberg Commodity Index. Futures on the Kospi index in Seoul were also up 0.5 percent, while those on the FTSE China A50 Index climbed 0.3 percent. Contracts on Hong Kong’s Hang Seng and Hang Seng China Enterprises indexes advanced at least 0.5 percent.
Bonds
Yields on Australian government debt due in a decade fell three basis points, or 0.03 percentage point, to 2 percent, their lowest level in two weeks. Rates on similar maturity New Zealand bonds also retreated, shedding three basis points to 2.46 percent.
Ten-year Treasuries yielded 1.62 percent last session, down three basis points for a three-day drop of nine basis points.
Treasuries have rallied this year as economic circumstances in the U.S. and abroad caused the Fed to delay tightening policy multiple times after a liftoff from near zero in December. While signs of U.S. labor-market strength have led bond traders to price in the growing likelihood of a rate increase by year-end, other data such as August retail sales and industrial production have shown declines.
Odds on a Fed move this year are about 59 percent, according to futures data compiled by Bloomberg. Still, the tightening cycle is poised to be the slowest and shallowest in recent history, based on the market for overnight index swaps, which reflect expectations for the fed funds effective rate.
Benchmark German 10-year bund yields dropped the most since June 24 on Thursday, while those on Spanish five- and 10-year securities slid to all-time lows.
Currencies
The yen slipped 0.1 percent to 100.81 per dollar, after weakening 0.4 percent last session, leaving its weekly gain at 1.4 percent, still the most since the last week of July.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, dropped 0.1 percent, falling for a third day to be down 0.9 percent this week.
While the Australian dollar headed into a fifth straight day of gains, its New Zealand counterpart nursed last session’s 0.5 percent loss after the central bank held rates but reaffirmed its easing bias. One-month non-deliverable forwards on the Indonesian rupiah weakened 0.1 percent following a six-day drop in the currency.