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

SINGAPORE  – Asian shares had their best day in weeks on Friday but were still on track for their worst quarterly performance in a year as worries over elevated interest rates dragged on sentiment, while the dollar wobbled and oil prices held their ground.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1 percent, and were set for their biggest one-day percentage rise in four weeks.

The index though remained close to the 10-month low it touched on Thursday and was set for a 4- percent drop in the July-September period, its worst quarterly performance since the 13.6-percent drop in the same period last year.

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

Investors are watching out for the U.S. personal consumption expenditures price index due later on Friday, but before that euro zone inflation data will take the center stage.

Economists polled by Reuters expect the inflation rate across the 20 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 its lowest level since Russia launched its full-scale invasion of Ukraine.

The recent rise in Treasury yields to 16-year highs has cast a shadow over the stock market, with the Federal Reserve’s hawkish tilt last week also weighing on risk sentiment.

Data showed the U.S. 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 are dimming the outlook for the rest of 2023.

“During the most recent Fed press conference, (Fed Chair Jerome) Powell mentioned that while the Fed doesn’t target levels of real GDP, it evaluates whether it poses a risk to achieving the 2 percent inflation target,” said Ryan Brandham, head 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 concerning inflationary environment.”

Focus on China property sector

In 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 surged 2.7 percent. The Chinese markets were closed for a holiday and are on a break next week.

Investor focus is zeroed in on the Chinese property sector after China Evergrande Group said its founder is being investigated over suspected “illegal crimes”.

In Asian hours, the yield on 10-year Treasury notes eased 0.5 basis points to 4.592 percent, inching away from the fresh 16 year peak of 4.688 percent it touched on Thursday.

In foreign exchange market, the dollar index eased 0.15 percent to 106 but hovered near the 10 month high of 106.84 it touched earlier this week. The index is up 2.4 percent this month and set for second straight month of gains.

The Japanese yen was at 149.35 per dollar, perilously close to the 150 level which is viewed as potentially spurring intervention from Japanese authorities.

Core inflation in Japan’s capital slowed in September for the third straight month mainly on falling fuel costs, data showed on Friday, suggesting that cost-push pressures are starting to peak, in a relief for the fragile economic recovery.

Oil prices regained grounds on Friday after a brief pause in rally as traders weighed expectations of supply increases by Russia and Saudi Arabia versus forecasts of positive demand from China during its Golden Week holiday.

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

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