Key facts
- Asian shares rose and bonds found relief as Federal Reserve Governor Christopher Waller cooled rate hike fears.
- Waller's comments suggested holding rates steady if upcoming data reinforces disinflation trends.
- Market expectations for a September Fed rate hike fell to 50% from 63%.
- The dollar weakened, and the yen strengthened significantly.
- Treasuries rallied, leading to a bull steepening of the yield curve.
- Investors are awaiting U.S. non-farm payrolls data for August.
Asian shares and global bonds rallied on Friday, with the yen strengthening, as Federal Reserve Governor Christopher Waller's dovish remarks eased fears of imminent interest rate hikes. Waller indicated a preference to hold rates steady if upcoming economic data reinforces signs of disinflation, leading futures markets to scale back the chance of a September hike to 50% from 63%. This sentiment shift caused the dollar to retreat and the yen to surge.
Treasuries also found relief, with the yield curve bull steepening as fears of rate hikes faded. Two-year yields fell 5 basis points to 4.3381%, moving away from a 20-month peak. Ten-year yields were little changed at 4.7620%, and 30-year yields also saw a slight decrease.
Despite the positive sentiment, investors remain cautious about inflation risks, particularly with ongoing geopolitical tensions between the U.S. and Iran potentially impacting oil prices, which held near six-week highs. The U.S. non-farm payrolls report for August is due later on Friday, with forecasts centered on a gain of 56,000 jobs and the unemployment rate holding steady at 4.1%.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 1%, tracking Wall Street's gains, though it remained down 0.4% for the week. Japan's Nikkei gained 0.8% but was down 2.7% for the week. Chinese blue-chips rallied 1%, and South Korea's KOSPI increased 1.1%.