Asian shares extend global rally

Japan's Nikkei surged 1pc to a 33-year high

SYDNEY (Reuters) – Asian shares extended a global rally on Monday on optimism the Federal Reserve would pause its rate hikes this month after a mixed US jobs report, while oil jumped as Saudi Arabia pledged big output cuts in July.

Brent oil jumped $1.82, or 2.4 per cent, to $77.95 a barrel, while US crude climbed $1.77, or 2.4pc, to $73.51. Oil prices have recently come under pressure amid heightened concerns about China's slowing economic recovery.

Oil rose as Saudi Arabia announced it would cut its output to 9 million barrels per day in July, from around 10 million bpd in May, the biggest reduction in years, while a broader OPEC+ deal to limit supply into 2024 also underpinned futures.

"With Saudi Arabia protecting oil prices from sliding too low ... we think oil markets are now more prone to a shortfall later this year," said Vivek Dhar, a mining and energy commodities strategist at Commonwealth Bank of Australia.

"We think Brent futures will rise to $US85/bbl by Q4 2023 even with a tepid demand recovery in China factored in."

On Monday, Japan's Nikkei surged 1pc to a 33-year high, Australia's resources-heavy shares (.AXJO) gained 1pc and South Korea's KOSPI (.KS11) rose 0.5pc.

S&P 500 futures dipped 0.1pc and Nasdaq futures dropped 0.3% in Asian hours, after a strong rally on Friday, driven by a mixed US jobs report, a resolution to the debt-ceiling issue and the prospect of a US rate pause this month.

The tech-heavy Nasdaq rose 1pc on Friday and posted its sixth-straight week of gains that marked its best winning streak since January 2020, while the Dow Jones gained 2pc and the S&P 500 added 1.45pc.

Data on Friday showed US economy added 339,000 jobs last month, higher than most estimates, bolstering expectations of Fed hikes in July, with markets tipping a 50pc chance for that.

However, moderating wage growth and rising jobless rate in Friday's jobs report argued for a case of pause in June. Markets are still leaning towards a rate pause from the Fed at the next policy meeting, but have priced out almost any chance of a rate cut by the end of this year.

Yields on US two-year Treasuries surged 16.2 basis points on Friday to 4.503pc and ten-years rose 8 bps to 3.6903pc, in part driven by Fitch Ratings saying the US' "AAA" credit rating would remain on negative watch, despite the debt agreement.

That in turn helped the dollar gain 0.5pc on Friday and stay elevated at 104.16 against its peers early on Monday. The greenback jumped 0.8pc on Japanese yen to 139.94 while the euro eased 0.5pc to $1.0706.

The Australian dollar was an outperformer against a strong greenback, up 0.5pc to $0.6605, on bets that the Reserve Bank of Australia will have to raise rates higher and for longer on domestic wage pressures.

The RBA will hold a policy meeting on Tuesday. In the wake of a strong increase in the minimum wages for the next financial year, markets are now split on whether it would hold rates steady or hike it further to 4.1pc.

The Bank of Canada will meet on Wednesday. A majority of economists polled by Reuters expect the BOC to keep interest rates on hold at 4.5pc for the rest of the year but the risk of one more rate hike was high.