Asia stocks up as weak data hurt Fed hike chances

The policy-sensitive yield on 2-year US Treasury bonds now stands at just 0.75 per cent – a tad lower than at the end of last month and 35 basis points lower than at the end of last year.

Japan’s Topix index rose 0.3 per cent. Australia’s S&P/ASX 200 Index gained 0.4 per cent.

Advertisment Asia traded mixed on Thursday amid lingering uncertainty over key central bank policy meetings next week, while markets in China, Taiwan and South Korea were closed for public holidays.

Also on Thursday, US weekly jobless claims data showed a tightening labour market with subdued layoffs last week, while underlying producer price inflation crept up in August.

But the Commerce Department also reported Thursday that business inventories had been flat in July while analysts had forecast a 0.1 percent rise.

“The long end of global yield curves could see upward pressure based on this adjustment, as well as fiscal policy crowding out what would normally be private borrowers”, the firm said.

These doubts have pushed yields on benchmark United States bond yields to 1.7 per cent at present, from a record closing low of 1.366 per cent set in July, while Japanese 10-year bond yields are now trading at minus 0.04 per cent, compared with their July low of minus 0.29 per cent. A September rate hike now has a 12% likelihood, according to CME Group’s Fed funds futures, down from 15% at the beginning of the week.

Traders are now pricing in an 18 per cent chance of a rate increase at the Fed’s meeting on Sept 21, down from 34 per cent at the start of the month and 20 per cent before the data.

In currency markets, the USA dollar was little changed against a basket of major currencies.

Wall Street also benefited from a 3.4% jump in Apple shares, after the company said the first batch of its new iPhone 7 Plus sold out globally.

“The disappointing retail sales numbers really reinforces our view that it would be hard for the Fed to lift rates next week”, said Bill Merz, an investment strategist at U.S. Bank Wealth Management in Minneapolis.

Even though market participants speculate the Bank of Japan (BoJ) to further embark on its easing cycle at the September 21 interest-rate decision, the Yen may continue to outperform against its Australian counterpart should Governor Haruhiko Kuroda and Co. endorse a wait-and-see approach for monetary policy.

Morgan Stanley economists said in a note on Wednesday that the central bank may opt for steps including a “marginal increase” in purchases of Japanese government bonds.

Both central banks will hold policy meetings next week.

On Thursday, the Bank of England held interest rates and monetary policy steady, as widely expected, but still kept the door open for further possible easing this year.

The SNB warned that significant risks remain after sticking with its ultra-loose monetary policy and currency intervention, while the BOE said it is still likely to cut interest rates to just above zero this year.

The dollar was last down 0.22 percent against the yen at 102.18 yen after hitting a session high in morning trading of 102.74 yen.

The implications for US monetary policy are significant, Mr. Fischer said, because lower potential growth in gross domestic product means a reduction in r*.

Oil prices pulled back on the resumption of exports from Libya and Nigeria and worry that U.S. rig counts would continue to rise.

Oil prices edged up as short-covering stemmed a two-day rout, but a stronger dollar stemmed gains.

Brent crude slid 0.5 percent to $46.38 a barrel, extending losses for the week to 3.4 percent.