Asian stocks end six-day slump as Fed rate-increase bets wither

Pedestrians walk in front of an electric quotation board displaying the Nikkei key index of the Tokyo Stock Exchange in Tokyo on Aug 19, 2016.
Pedestrians walk in front of an electric quotation board displaying the Nikkei key index of the Tokyo Stock Exchange in Tokyo on Aug 19, 2016. PHOTO: AFP

SYDNEY (BLOOMBERG) - Asian stocks rebounded from its longest losing streak since May on Friday (Sept 16), after weaker-than-anticipated US data triggered a delay in investor expectations for a US interest-rate increase, spurring a rally in risk assets.

The MSCI Asia Pacific Index rose 0.2 per cent to 136.82 as of 9:05 am in Tokyo, halting a six-day run of declines and paring this week's loss to 2.5 per cent.

Japan's Topix index rose 0.3 per cent. Australia's S&P/ASX 200 Index gained 0.4 per cent. New Zealand's S&P/NZX 50 Index advanced 0.6 per cent. Markets are shut for holidays on Friday in China, Hong Kong, Taiwan and South Korea.

Reports on Thursday showed US industrial production contracted more than forecast, while retail sales unexpectedly slid, sending the odds for a rate increase from the Federal Reserve next week to below 20 per cent.

About US$2 trillion was erased from the value of global equity markets in the past week amid concern central banks are reluctant to boost stimulus even as the global economy sputters.

"The bulls have wrestled some sort of control," said Chris Weston, Melbourne-based chief market strategist at IG Ltd. "Anyone left calling for a September hike next week from the Federal Reserve must be feeling a bit hot under the collar after further signs of economic vulnerabilities."

After charging through the second quarter, the US consumer is showing signs of exhaustion at the start of the second half of 2016, with core sales falling 0.1 per cent in August. Industrial production fell 0.4 per cent, worse than economists' forecast for a 0.2 per cent decline.

Traders are now pricing in an 18 per cent chance of a rate increase at the Fed's meeting on Sept 21, down from 34 per cent at the start of the month and 20 per cent before the data.

The Bank of England on Thursday maintained its level of asset purchases, with attention now switching to the Fed and the Bank of Japan, both of which meet to review policy next week. Forecasts on what the BOJ may decide vary, with everything from increasing buying of government bonds, further deepening of negative rates, or no action being taken at all being floated as possibilities.

"Expectations of what the BOJ might announce next Wednesday, be it more easing or more tightening, are unprecedented in their divergence," said Christopher Wood, chief equity strategist at CLSA Ltd. "The result is even more uncertainty than normal, creating a potentially extremely perilous environment for macro speculators."

Futures on the S&P 500 Index slid 0.2 per cent. The underlying measure gained 1 per cent on Thursday following a two- day drop of 1.5 per cent left the index at its lowest point since July 7 as Apple Inc extended gains into a fourth day and a rebound in crude prices boosted energy stocks.