SYDNEY, 4th July, 2024 (WAM) -- Asia stocks hit 27-month highs on Thursday as softer U.S. data narrowed the odds on a September rate cut there, boosting bonds and commodities while dragging on the dollar, Reuters reported.
A holiday in the United States made for thin trading. FTSE futures nudged up 0.1 percent, while sterling held at US$1.2740. EUROSTOXX 50 futures were little changed.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.9 percent to reach its highest since April 2022.
Japan's Nikkei climbed 0.9 percent to within spitting distance of its March peak, while the broader Topix clinched all-time highs.
Taiwan's main index also struck a record led by the tech sector and Taiwan Semiconductor Manufacturing Co (TSMC).
U.S. stocks steady
S&P 500 futures and Nasdaq futures were steady after reaching another record overnight in the wake of soft economic data.
The U.S. ISM measure of services activity surprised by sliding to its lowest since mid-2020, with employment notably weak ahead of the June payrolls report due on Friday. Analysts cautioned the series was contradicted by strength in the PMI survey of services, but did note that price measures in both surveys pointed to easing inflation.
The ISM Manufacturing Index, commonly known as the ISM Manufacturing Purchasing Managers Index (ISM PMI), is a monthly gauge of the level of economic activity in the manufacturing sector in the United States versus the previous month.
Probability of rate cut
A run of subdued data mean Citi's U.S. economic surprise index has sunk to -47.5, the lowest since August 2022. Meanwhile, the closely watched Atlanta Fed's GDPNow estimate fell to just 1.5 percent from 1.7 percent.
That should be music to the ears of the Federal Reserve, with minutes of its last meeting showing committee members wanted more evidence of a cooling economy before cutting rates.
At the time of that meeting, the GDPNow growth estimate was running around 3 percent annualised.
Markets quickly lifted the probability of a September rate cut to 74 percent, from 65 percent, while pricing in 47 basis points of easing for this year.
Yields on 10-year Treasuries dropped 8 basis points in response to 4.355 percent.
Dollar drops
With the U.S. economy now seemingly less exceptional, the dollar dropped across the board. The euro was up at US$1.0785, and away from its recent low of US$1.0666, while the dollar index hit its lowest in three weeks.
The Australian dollar was a notable gainer, touching a six-month peak of US$0.6733 as markets are wagering the next move in local rates could be higher.
The yen remained out in the cold, hitting multi-year lows on a host of currencies as investors continued to favour carry trades. The dollar stood at 161.53 yen after striking a 38-year top of 161.96 overnight.
Commodities
The drop in the dollar was a boon for commodities, with gold rallying to US$2,358 an ounce, from US$2,318 at the start of the week.
Oil prices eased a touch, having gained overnight when a surprisingly large decline in U.S. crude stocks pointed to firmer demand as the U.S. driving season gets underway.
Brent dipped 47 cents to US$86.87 a barrel, while U.S. crude fell 53 cents to US$83.35 per barrel.