A late rally in US stocks lifted sentiment across Asia on Thursday. US equities were boosted on Wednesday after New York Fed President William Dudley said that the case for a September rate increase ‘seems less compelling’ than it was a few weeks ago due to the financial market volatility seen in recent days. Dudley’s comments overshadowed strong durable goods orders data that beat expectations.
The Dow Jones closed up 4% and the S&P 500 was up 3.9%. Shares in Asia rose in response as immediate fears over China dissipated after the PBOC cut rates and the RRR on Tuesday, followed by an injection of 150 billion yuan into the financial system through 7-day reverse-purchase agreements on Wednesday. While on Thursday, the PBOC set the yuan’s midpoint against the dollar at the lowest level since 2011 at 6.4085. China’s main indices were up by over 1.5% in late Asian trading.
The dollar rallied against the Japanese yen after the Governor of the Bank of Japan Haruhiko Kuroda said that the slowdown in China should not affect Japanese exports too negatively in the coming years. The Governor also expressed confidence that the central bank can meet its 2% inflation target by September 2016 despite weak oil prices. The dollar climbed to 120.18 yen in late Asian session and was also sharply higher against the pound as cable plummeted to 1.5488.
The euro fell against major currencies after ECB board member Peter Praet said that global developments have increased the downside risk of achieving the ECB’s 2% inflation target and that the Governing Council is ‘ready to act if needed’. This sent the signal to the markets that the ECB could expand its existing QE program in the coming months. The euro was down sharply against the dollar, dropping below the 1.14 level, and was last trading at 1.1325 dollars. The single currency was also lower against the pound and the yen at 0.7312 pounds and 136.15 yen respectively.
Oil prices rallied as the recent market panic receded. WTI crude futures were up 2.8% at $39.68 and Brent crude was up 2.7% at $44.30. Gold prices steadied after the sharp falls in the past three days. It was up at $1128 in late Asian session.
Looking ahead to the rest of the day, US GDP data will the main focus for investors as second quarter growth is expected to be revised up to 3.2% on an annualised basis from initial estimates of 2.3%. Also to watch out for is the Jackson Hole Symposium, which begins today and is an annual gathering of central bankers and academics, including Fed Vice Chair Stanley Fischer who is due to give a speech.