Asian stocks extended gains, trimming their worst month since February amid optimism the global economy is strong enough to withstand a boost to U.S. borrowing costs that may come as early as June. The dollar retreated versus major peers, paring its best rally since 2014.
Futures on European and U.K. indexes advanced about 0.2 percent, while gains in Japan and Hong Kong pushed Asia’s equity benchmark up for a fifth straight day. China’s equities shrugged off a flash-crash in index futures with the Shanghai gauge heading for its biggest gain since March. Gold climbed for the first time in 10 days, halting its longest slump in more than a year, as Treasuries dropped on their first day of trading this week. American crude oil headed for its longest run of monthly gains in five years amid output disruptions.
The Fed’s rate outlook continues to occupy markets as traders maintain odds of a hike in July at more than 50 percent. With U.S. officials emphasizing that any policy tightening is dependent on the economy continuing to improve, investors will be scrutinizing American payrolls and personal income data due this week. The potential for higher U.S. yields has revived the greenback in May, with a gauge of the currency versus major peers up more than 3 percent this month. Meanwhile, data is painting a lackluster picture of Japan’s economy, with bets leaders will have to boost stimulus weakening the yen.
“In either June or July, they’re going to” raise U.S. interest rates, said Kazuaki Oh’E, the head of fixed income at CIBC World Markets Japan Inc. in Tokyo. “The economy is not in a bad condition.”
Data on personal spending and income greet investors in the U.S. returning from Monday’s Memorial Day holiday, with the jobs report due on Friday. Markets in the U.K. also resume Tuesday after a break. Singapore and Indonesia will update on money supply, Thailand reports on trade and Hong Kong posts on retail sales. Later in the session, India will report on first-quarter gross domestic product.
“While keeping an eye on U.S. monetary policy, market participants will also be looking at which way the market could go next,” said Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo. “Investors want to see how U.S. markets react after their holiday.”
The MSCI Asia Pacific Index climbed 0.7 percent as of 7:03 a.m. London time. The measure is still down 1.6 percent in May, its worst monthly drop since February. In January it tumbled 8 percent amid global anxiety over China.
Japan’s Topix index gained 1 percent, capping a 2.9 percent advance in May, while energy and consumer companies led Australia’s S&P/ASX 200 Index down 0.5 percent, trimming its third straight monthly climb to 2.4 percent.
The Shanghai Composite Index jumped 3 percent, set for the steepest climb since March 2. Contracts on the CSI 300 Index dropped as much as 10 percent at around 10:42 a.m. local time, recovering almost all of the losses in the same minute. The move had little effect on the underlying CSI 300, which rose 3.1 percent.
In Hong Kong, the Hang Seng and Hang Seng China Enterprises indexes rose more than 1.3 percent. Singapore’s Straits Times Index advanced 0.9 percent.
Index operator MSCI Inc. will start including American Depository Receipts of Chinese shares in its stock gauges as of Tuesday’s close, giving passive investors bigger stakes in China’s technology and services companies, while downsizing state-run industrial and financial equities. MSCI will decide in June whether to include mainland-traded A shares as well.
Futures on the S&P 500 Index were up 0.2 percent from Friday’s close, to 2,102.25. Comments from Fed Chair Janet Yellen on Friday supporting the case for a rate increase in the next few months sent the U.S. benchmark up 0.4 percent. Contracts on the Euro Stoxx 50 Index advanced 0.2 percent and futures for U.K., French and German equity gauges were all up that or more.
The yen weakened 0.2 percent to 111.29 per dollar, even as most major currencies rallied. Australia’s dollar climbed 0.8 percent and the pound strengthened 0.4 percent.
After rallying over the past two sessions the dollar took a breather, with the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed. The index is still up 3.6 percent in May, after retreating over the previous three months.
Bets on the Fed increasing rates at next month’s meeting have jumped to 30 percent, from 12 percent a month ago, while odds of a move in July are at 54 percent, up from 26 percent, according to Fed funds futures tracked by Bloomberg. Fed officials including Chair Janet Yellen have flagged the possibility of a rate increase as soon as June over the past two weeks.
“U.S. policy normalization and its likely impact has remained a key theme for markets,” Mark Smith, a senior economist in Auckland at ANZ Bank New Zealand Ltd., said in a note to clients. “The dilemma facing the data-dependent Fed is that some U.S. data does not look as strong as it once did, with the manufacturing sector under the pump. At some stage the Fed will choose which course of action it will take, and trust that the economy – and financial markets – are resilient enough to bear it.”
Treasuries declined, sending the yield on benchmark 10-year notes up by two basis points to 1.87 percent.
Australian government securities retreated, reversing initial gains, after the statistics bureau said net exports contributed 1.1 percentage points to gross domestic product, more than the 0.7 point increase forecast in a Bloomberg survey of economists. The yield on 10-year bonds rose three basis points to 2.31 percent in Sydney, after earlier declining two basis points.
Japanese two-year debt advanced after a sale of the securities drew the strongest demand since December 2014. The yield on the bonds declined 0.5 basis point to minus 0.245 percent. Yields on 10-year Japanese notes fell 0.5 basis point to minus 0.12 percent.
Gold for immediate delivery jumped 0.6 percent to $1,212.56 an ounce, after sliding almost 6 percent over the previous nine days as the prospect of a U.S. rate hike diminished the precious metal’s appeal.
Copper declined 0.2 percent and lead was down 0.6 percent as the London Metals Exchange started trading for the week, while nickel surged 1.3 percent.
West Texas Intermediate crude was up 0.7 percent from Friday’s close in the U.S., to $49.65 a barrel, as traders await Thursday’s meeting of OPEC suppliers. WTI has climbed 7.8 percent in May, its fourth straight monthly advance and the longest stretch of gains since 2011.
Militant attacks have cut Nigerian oil supply to the lowest level in more than two decades while Canadian output is still stabilizing after sliding amid wildfires. Libya’s Petroleum Facilities Guard captured a town near the Es Sider and Ras Lanuf oil-loading terminals after fierce clashes with Islamic State militants.