Asian stocks end grim Q3 on brighter note, rate worries linger

SINGAPORE – Asian Stocks had their best day in weeks on Friday but were still on track for their worst quarterly performance in a year as high interest rate concerns dented sentiment while the dollar fluctuated and oil prices held steady.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1 percent, set to post its biggest single-day percentage gain in four weeks.

However, the index remained close to Thursday’s 10-month low and expected a 4 percent decline in the July-September period, its worst quarterly performance since the 13.6 percent decline in the same period last year.

Futures indicated the relief rally in Europe could continue, with Eurostoxx 50 futures up 0.07 percent, German DAX futures up 0.19 percent and FTSE futures up 0.12 percent.

Investors are looking forward to the US consumer spending price index to be published later on Friday, but before that the focus will be on eurozone inflation figures.

Economists consulted by Reuters expect the inflation rate in the twenty countries that use the euro to fall to 4.5 percent in September from 5.2 percent in August.

Data on Thursday showed German inflation fell in September to the lowest level since Russia launched its all-out invasion of Ukraine.

The recent rise in government bond yields to a 16-year high has cast a shadow over the stock market, with the Federal Reserve’s aggressive stance last week also weighing on risk sentiment.

Data shows the US economy maintained a fairly solid pace of growth in the second quarter and activity appears to have accelerated this quarter, but a looming government shutdown and an ongoing strike by auto workers cloud the outlook for the remainder of 2023.

“At the Fed’s most recent press conference, (Fed Chairman Jerome) Powell said that while the Fed is not targeting real GDP levels, it is evaluating whether this poses a risk to achieving the 2 percent inflation target,” he said. Ryan Brandham, head of the Fed. of global capital markets, North America at Validus Risk Management.

“From this perspective, the current GDP figure is not seen as a significant threat and may provide some comfort in an otherwise worrying inflation environment.”

Focus on the Chinese real estate sector

In the rest of Asia, Japan’s Nikkei was 0.34 percent lower, while Australia’s S&P/ASX 200 index rose 0.56 percent. Hong Kong’s Hang Seng index rose 2.7 percent. Chinese markets were closed for a holiday and will have a break next week.

Investors’ focus is turning to China’s real estate sector after China Evergrande Group said its founder was under investigation for suspected “illegal crimes.”

In Asian hour, the yield on 10-year government bonds fell 0.5 basis points to 4.592 percent, a step away from the new 16-year peak of 4.688 percent reached on Thursday.

In the currency market, the dollar index fell 0.15 percent to 106, but hovered near the 10-month high of 106.84 it reached earlier this week. The index rose 2.4 percent this month and is ready for the second month in a row with gains.

The Japanese yen stood at 149.35 per dollar, perilously close to the 150 level, seen as a potential trigger for intervention by Japanese authorities.

Core inflation in the Japanese capital slowed for a third straight month in September, mainly due to falling fuel costs, data showed on Friday. This indicates that cost pressures are beginning to peak, which is a relief for the fragile economic recovery.

Oil prices recovered on Friday after a brief lull in the rally, as traders weighed expectations of a supply surge from Russia and Saudi Arabia against forecasts of positive demand from China during Golden Week.

U.S. crude fell 0.02 percent to $91.69 a barrel and Brent traded at $95.05, down 0.35 percent on the day.

Gold prices braced for their biggest monthly drop since February, hovering around a six-month low. Spot gold was little changed at $1,864.75 an ounce.