By Stella Qiu
SYDNEY (Reuters) – Asian stocks extended their global rally on Monday on optimism that the Federal Reserve would suspend rate hikes this month after a mixed U.S. jobs report, while oil rose. jumped as Saudi Arabia pledged to drastically cut production in July.
Brent oil jumped $1.82, or 2.4%, to $77.95 a barrel, while U.S. crude climbed $1.77, or 2.4%, to $73.51. Oil prices have recently come under pressure amid heightened concerns about China’s slowing economic recovery. [O/R]
Oil rose as Saudi Arabia announced it would cut production to 9 million barrels a day in July from around 10 million bpd in May, the biggest cut in years, while a deal broader OPEC+ to limit supply until 2024 also supported futures.
“With Saudi Arabia protecting oil prices from falling too low…we believe oil markets are now more deficit prone later this year,” said Vivek Dhar, mining and energy commodities strategist at the Commonwealth Bank of Australia.
“We expect Brent futures to reach USD 85/bbl by Q4 2023, even taking into account a tentative recovery in demand in China.”
On Monday, Japan’s Nikkei jumped 1% to a 33-year high, Australian resource-rich stocks gained 1% and South Korea’s KOSPI rose 0.5%.
S&P 500 futures fell 0.1% and Nasdaq futures fell 0.3% in Asian times, after a strong rally on Friday, led by a mixed US jobs report. United, a resolution of the debt ceiling problem and the prospect of a break in US rates this month.
The tech-heavy Nasdaq rose 1% on Friday and posted its sixth straight week of gains that marked its best winning streak since January 2020, while the Dow Jones gained 2% and the S&P 500 added 1 .45%.
Friday’s data showed the U.S. economy added 339,000 jobs last month, better than most estimates, bolstering expectations of Fed hikes in July as markets have a 50% chance for that.
However, moderating wage growth and a rising jobless rate in Friday’s jobs report argued for a pause in June.
Markets are still leaning toward a Fed rate break at the next policy meeting, but have ruled out almost any chance of a rate cut by the end of this year.
Yields on two-year U.S. Treasuries jumped 16.2 basis points on Friday to 4.503% and those on ten-years rose 8 basis points to 3.6903%, partly driven by Fitch Ratings claiming that the United States’ “AAA” credit rating would remain on negative watch, despite the debt agreement.
This in turn helped the dollar gain 0.5% on Friday and remain high at 104.16 against its peers early Monday. The greenback jumped 0.8% on the Japanese yen to 139.94 while the euro eased 0.5% to $1.0706.
The Aussie dollar outperformed against a strong greenback, rising 0.5% to $0.6605 on bets that the Reserve Bank of Australia will have to raise rates higher and longer due to domestic wage pressures .
The RBA will hold a policy meeting on Tuesday. In the wake of a big increase in the minimum wage for the next fiscal year, markets are now split on whether he would keep rates steady or raise them further to 4.1%.
The Bank of Canada will meet on Wednesday. A majority of economists polled by Reuters expect the BOC to hold interest rates at 4.5% for the rest of the year, but the risk of another rate hike was high.
(Edited by Himani Sarkar)