Asian stocks, bonds gain as oil extends decline

Reports coming in for today mention that Asian stocks and bonds rose tracking a surge on Wall Street as a pullback in crude prices eased inflation concerns. The yen was mostly steady ahead of the Bank of Japan’s interest-rate decision, with traders expecting a hike.

MSCI’s regional equities gauge advanced 0.3% with South Korea’s Kospi index leading upside. That came after the S&P 500 Index rose 1.1% on Thursday, its biggest advance since early August. The tech-heavy Nasdaq 100 Index advanced 1.7%, while a key gauge of chipmakers jumped 3.1% as US stocks rebounded from losses triggered by the The US central bank’s first interest-rate gain since 2023.

Adding to the positive tone, Brent crude declined for a third day Friday to just below $104.00 a barrel as supply concerns eased and traders turned to the next round of diplomacy that could shape the US-Iran war.

Oil’s retreat helped Treasuries surge across the curve in the New York session, with the 10-year yield falling nine basis points to 4.93%, having touched 5.02% Wednesday following the Fed move. Government bonds of similar tenor in Australia and New Zealand opened elevated.

Softer energy prices could reduce pressure on consumer prices and give central banks more room to assess the impact of tighter monetary policy, offering backing to both stocks and bonds. But the durability of that reprieve may depend on whether oil keeps retreat, with the US-Iran war and prospects for further diplomacy keeping the outlook for energy supplies uncertain.

“Sentiment has been lifted in part because oil has fallen for a second day, easing pressure on bond yields,” stated Fawad Razaqzada at Forex.com.

Oil declined with Saudi Arabia seeking to restore around half the capacity of its key East-West pipeline within days after it was shut last week following drone strikes, easing some concerns over further supply losses stemming from the Iran conflict.

In the meantime, Reuters noted that China asked Iran to help rein in Yemen’s Tehran-backed Houthi militants, a move that could potentially ease disruptions around the Bab el-Mandeb, another strait vital to global shipping and energy markets.

Elsewhere, gold jumped on Thursday, snapping a three-day slide, while a Bloomberg gauge of the dollar pared some of its upside since the rate gain.

UK government bonds additionally rallied after the Bank of England scrapped plans to sell long-dated gilts as part of its quantitative-tightening program. The decision offered relief to a battered market, where 10- and 30-year yields had advanced to their highest marks since 2007 and 1998, respectively.

The BOE left its benchmark rate unchanged on Thursday.

In the meantime, Japan’s inflation slowed for the first time in four months, largely reflecting the effect of government subsidies, in data released hours before the BOJ. All respondents in a Bloomberg survey expect the central bank to mobilize its policy rate to 1.25% from 1% on Friday, with governor Kazuo Ueda scheduled to hold a press conference after.

The yen was little changed, trading around 156.15 per dollar.

“We expect the BOJ to deliver a 25 basis point hike to 1.25% on Friday – this is now the bare minimum and it would be pretty unimaginable at this point that we don’t get one,” wrote Anthony Malouf, a market market observer at Ebury. “Governor Ueda will have no choice but to additionally strike a hawkish note on policy for risk of undoing a lot of the good work achieved via FX intervention.”