SINGAPORE, Nov 3 (Reuters) - Asian stocks experienced an upswing on Monday, buoyed by a recent U.S.-China trade truce and an increase in spending on artificial intelligence. This positive risk sentiment has kept market confidence high. Meanwhile, the dollar remained close to a three-month peak following hawkish comments from Federal Reserve policymakers.
Investors are still digesting key developments from the previous week, particularly the outcomes of central bank meetings and the U.S.-China agreement on a year-long trade truce, which largely met market expectations. However, lingering doubts persist regarding the sustainability of this truce over its intended duration. BofA strategists recommend that investors consider locking in some profits during market rises and accumulating positions during corrections. They also suggest rotating into more defensive strategies as the year draws to a close, pointing out that the optimism surrounding the U.S.-China trade agreement has largely been integrated into current market prices.
In Japan, markets remained closed for a holiday, leading to subdued trading activity during Asian hours with no cash Treasuries trading. Nasdaq futures climbed by 0.25%, and European futures indicated a positive opening as well.
On Friday, several Federal Reserve bank presidents expressed their concerns over the central bank's decision to cut interest rates. In contrast, influential Fed Governor Christopher Waller advocated for further easing to stabilize the weakening labor market. Following the October monetary policy meeting, Fed Chair Jerome Powell indicated that an interest rate cut at the upcoming December meeting was not guaranteed, a shift from earlier expectations that had deemed it almost a certainty.
Goldman Sachs strategists noted that the rationale behind potential rate cuts aligns with their belief that the U.S. economy may not perform as robustly as it has in the past. This scenario is likely to contribute to a weaker dollar in the long run due to its currently strong position. Presently, traders are estimating a 68% likelihood of a rate cut in December, a drop from nearly certain predictions made prior to the Fed meeting, where the central bank reduced rates by 25 basis points as anticipated. This has resulted in a firmer dollar, with the euro trading at $1.1524, marking a three-month low. The British pound dipped by 0.2% to $1.3142, and the yen was positioned at 154.05 per U.S. dollar, close to its lowest value since mid-February.
The continuing U.S. government shutdown, which has now extended into the second week, will prevent the release of crucial data regarding job openings and nonfarm payrolls. This shutdown, which began on October 1, is now the second-longest in history, surpassed only by the 2018-2019 shutdown that lasted 35 days. Market analyst Tony Sycamore at IG emphasized that the focus will shift to the upcoming ADP employment report and the employment components within the ISM PMIs to gauge the health of the U.S. labor market.
The spotlight remains on the ongoing earnings season, particularly following a mixed bag of results from major companies. Investors are eager to see a return on significant capital spending directed towards AI infrastructure. While enthusiasm for AI has played a crucial role in driving global stock markets, there is also a cautious sentiment regarding potential overexuberance tied to this trend. Investors are keen for tangible evidence that these AI investments are generating positive returns.
In the commodities market, gold prices rebounded, trading above $4,000 early in the session as traders capitalized on the dip. Meanwhile, Brent crude futures rose by 0.32% to $64.98 per barrel, and U.S. West Texas Intermediate crude reached $61.16 per barrel, up 0.28%, after OPEC+ opted to maintain production levels without increases in the first quarter of the upcoming year.
Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong and Sonali Paul.
