05.31 BST Japanese and Australian stocks were on track to finish a rough week on a positive note amid renewed expectations the US Federal Reserve may keep interest rates on hold for the remainder of this year.


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Global Market Overview

A batch of weak US retail sales and industrial production data on Thursday prompted investors to trim their bets on the US central bank raising rates at next week’s policy meeting. The probability of a rate rise in December has slipped to 49.7 per cent from 58.5 per cent a week ago, according to pricing tracked by Bloomberg.

That prospect prompted US Treasuries to rally and the dollar to weaken, while the S&P 500 closed 1 per cent higher. Gold, which is typically sensitive to monetary policy expectations, missed out on the action and was flat at $1,314.17 an ounce after slipping 0.6 per cent on Thursday.

Japan’s broad Topix benchmark and the Nikkei 225 were both up 0.5 per cent, while Australia’s S&P/ASX 200 gained 1 per cent. Singapore’s Straits Times was up 0.9 per cent, but major markets elsewhere around Asia were shut for the mid-autumn festival public holiday.

Gains in the Japanese market were led by financial stocks, while in Australia utilities were one of the standout sectors, rebounding after a record 12-day losing streak during which investors had dumped bond proxies.

As well as the holidays, volumes are thinning ahead of next week’s central bank double-header, with the Bank of Japan and then the Federal Reserve both delivering policy decisions on September 21.

Ryutaro Kono, chief Japan economist at BNP Paribas says his basic expectation is for the BoJ to tweak its policy framework, but to refrain from implementing additional easing.

“If, contrary to our expectations, the BoJ were to ease, a policy-rate cut is perhaps the most likely option; but that might be accompanied by changes to the loan support programme allowing financial institutions to borrow at negative interest rates,” Mr Kono added.

The central bank had flagged it would conduct a review into its negative interest rates and quantitative easing policies at this meeting.

The yen was 0.1 per cent stronger on Friday at ¥‎102.01 per dollar, eyeing a third straight day of gains and a 0.6 per cent appreciation for the week. The yield (which moves inversely to price) on benchmark 10-year Japanese government bonds was 0.8 basis points higher at minus 0.03 per cent, facing their first rise in four sessions.

The dollar index, a measure of the US currency against a basket of global peers, was flat at 95.297 in morning trade, while the yield on the benchmark 10-year US Treasury was flat at 1.6907 per cent.

Australian government bonds continued on their longest losing streak since November last year. Yields were up 1.3 basis points at 2.12 per cent, marking the seventh consecutive day of gains.

Most Asian currencies benefited from the weaker greenback, with the Indonesian rupiah, Indian rupee and Thai baht the best performers and all up more than 0.2 per cent.

Oil prices were in retreat on Friday following overnight gains. Brent crude, the international benchmark, was down 0.6 per cent at $46.29 a barrel and West Texas Intermediate was 0.7 per cent lower at $43.60.

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