Asia looks to extend rally on China, US rate hopes

Asian stock market: Asian shares inched higher on Monday as markets wagered the Federal Reserve was done raising U.S. interest rates, and on hopes the drip feed of policy stimulus from Beijing would be enough to stabilise the Chinese economy. A holiday in the United States made for a slow start ahead of key readings on U.S. services and Chinese trade and inflation later in the week. More policy action is also expected from Beijing, including relaxing restrictions on home buying.

There was relief that embattled property developer Country Garden won approval from its creditors to extend payments for an onshore private bond. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) inched up another 0.1 per cent, having bounced 2.3 per cent last week. Japan's Nikkei (.N225) rose 0.2 per cent, after rallying 3.4 per cent last week.

The broader Topix (.TOPX) jumped 3.7 per cent last week to its highest in 33 years, helped by data showing companies made record profits in the June quarter. Yet the Topix still only has a price to earnings ratio of 14, compared to 23 for the S&P 500 and 29.5 for the Nasdaq. Investor sentiment on the tech sector will be tested this week by the initial public offering for chip giant Arm Holdings, which is aiming for a price in the range of $47 to $51 valuing the company between $50 billion and $54 billion.

S&P 500 futures and Nasdaq futures were both little changed early on Monday. Stocks had firmed on Friday after a benign August payrolls report hardened expectations for an end to rate hikes. While the headline jobs number topped forecasts, downward revisions to the previous two months and a dip in wage growth pointed to a loosening in the labour market.

The jobless rate also jumped as more people went looking for work, leaving the vacancies to unemployed ratio at its lowest since September 2021. "This continued rebalancing of the labor market is consistent with our view that the July hike in the Fed funds rate was the last of the cycle," wrote analysts at Goldman Sachs.

"We continue to expect unchanged policy at both the September and November FOMC meetings." The market seemed to agree as futures now imply a 93 per cent chance of rates staying steady this month and a 67 per cent probability that the entire tightening cycle is over. Treasuries initially rallied on the jobs data, but soon ran into selling and longer-dated yields ended Friday higher. There was no trading in cash Treasuries on Monday, but futures eased a little further.

At least seven Federal Reserve officials are due to speak this week ahead of the next policy meeting on Sept. 19-20. Central banks in Canada and Australia hold their own meetings this week and both are expected to hold rates steady. The head of the European Central Bank, Christine Lagarde, is speaking later on Monday, with the market now leaning against a hike at its September meeting after a run of soft data.

The relative outperformance of the U.S. economy underpinned the dollar at 146.17 yen , not far from its recent 10-month peak of 147.37. The euro looked vulnerable at $1.0772 , just a whisker from its recent low and major support at $1.0765. In commodities, gold benefited from the diminished risk of a U.S. rate rise to stand at $1,939 an ounce . Oil prices were near seven-month highs on tightening supply as Saudi Arabia was widely expected to extend a voluntary 1 million barrel per day oil production cut into October. Brent firmed 35 cents to $88.90 a barrel, while U.S. crude rose 44 cents to $85.99 per barrel.