Asian stocks rose alongside U.S. Treasury bonds after weaker-than-expected U.S. jobs data boosted bets on an interest rate cut by the Federal Reserve, supporting market sentiment.
The MSCI Asia Pacific index rose 0.6%, with winning stocks outnumbering losing stocks by two to one.
Despite opening lower, technology stocks quickly recovered, while Nasdaq 100 futures rose 0.5%.
Shares of Advanced Micro Devices (AMD) jumped 4.8% in extended U.S. trading after the company forecast faster sales growth, while SoftBank's Tokyo stock fell 6% after it sold its stake in Nvidia Corp.
Jobs data reinforces bets on an interest rate cut
Data from ADP Research indicated that the US labor market slowed during the second half of October, pushing bonds higher along the yield curve.
The yield on 10-year Treasury bonds fell by 4 basis points to 4.08%, while financial markets increased their bets on an interest rate cut, pricing in a probability of nearly 70% for a cut next month.
The dollar index rose slightly after five days of losses, while gold saw limited fluctuations.
Ending the government shutdown restores confidence to the markets
The US government shutdown has increased the importance of private data such as ADP reports, after investors were deprived of official indicators to measure the strength of the US economy.
But the record shutdown is on track to end by Wednesday, after the Senate passed a temporary funding measure that supported stocks, as investors await a flood of delayed data once government agencies reopen.
Rajiv DeMello, global portfolio manager at Gamma Asset Management, said: “With government agencies resuming operations, we expect a clearer picture of economic data, which is an important step in assessing the underlying strength of the US economy. Investors are currently adjusting their positions to a range of supportive factors.”
ADP data showed that U.S. companies cut an average of 11,250 jobs per week during the four weeks ending October 25. The company's latest monthly report, released last week, indicated that the private sector added 42,000 jobs in October, following two consecutive months of declines.
These figures come after several companies announced plans to cut staff in recent weeks, with a report from Challenger, Gray & Christmas revealing that employers announced the largest number of layoffs for October in more than two decades, raising concerns about the health of the U.S. labor market.
Markets await clarity on the interest rate path
Westpac Banking Corp. strategists Damien McCullough and Uma Chaudhry wrote in a note: “The market will continue to be influenced by the general risk-on mood and statements from Fed officials, but we believe it will be difficult to identify a firm direction at the moment.”
The reopening of the US government now hinges on the House of Representatives, which plans to return to Washington to consider a spending package that would keep most government agencies open until January 30 and some until September 30. If approved, the bill would then go to President Donald Trump, who has already announced his support for the legislation.
Optimism persists despite concerns about a slowdown.
Garfield Reynolds, head of the Markets Live team at Bloomberg, believes global stocks may struggle to regain their full momentum unless the path of monetary easing in the US and other major economies becomes clearer. He noted that concerns about an artificial intelligence bubble are further complicating the investment landscape.
The resumption of economic data releases may bolster expectations of an interest rate cut. Most economists surveyed by Bloomberg expect the Federal Reserve to lower interest rates by a quarter of a percentage point at its meeting on December 9-10, but the path of monetary policy remains uncertain after Fed Chair Jerome Powell emphasized last month that a cut is not guaranteed, a stance echoed by other central bank officials.
Optimism about new stock market highs
Against this backdrop, Bloomberg data shows that the use of the term “economic slowdown” and its synonyms in earnings calls and corporate guidance is at its lowest since 2007, at a time when the S&P 500 is on track for its third year of high returns, with stock valuations reaching levels similar to the post-coronavirus peak.
Louis Navellier of Navellier & Associates said: “Overall, the trend remains positive, and new highs by the end of the year are entirely possible, especially if the Fed cuts interest rates in December and adopts a more dovish tone.”
