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Friday, 5 August 2016

Asia stocks gain, pound weaker after BoE easing, U.S. job data awaited


Most Asian stock markets rose on Friday after the Bank of England launched a larger-than-expected post-Brexit stimulus package that sent the pound reeling.

An overnight rally in crude oil prices also sharpened investors' risk appetite, but caution before the July U.S. non-farm payrolls report later on Friday kept gains in check.

European markets also looked set to rise, with financial spreadbetter CMC Markets predicting Britain's FTSE 100 .FTSE will open about 0.4 percent higher, and Germany's DAX .GDAXI and France's CAC 40 .FCHI will start the day up 0.3 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS extended gains to 1.1 percent, and were headed for a 0.8 percent weekly gain. MSCI's world stocks index . rose 0.2 percent on Friday.

But Japan's Nikkei .N225 surrendered earlier gains to close flat. It fell 1.9 percent in a week marked by investor disappointment over new stimulus measures announced by the central bank and the government.

China's CSI 300 index .CSI300 climbed 0.4 percent and looked set to end the week 0.3 percent higher. The Shanghai Composite .SSEC was little changed, poised for a 0.1 percent weekly gain. China will release a flurry of data over the coming week.

The BoE's quarter-point rate cut to a record low 0.25 percent boosted shares in Europe while sending already low global bond yields even further down with British yields hitting record lows as gilt prices rose.

The BoE said it would take "whatever action is necessary" to achieve stability in the wake of Britain's vote to leave the European Union.

"BoE Governor Mark Carney's assessment of the post-Brexit U.K. economy was very negative, predicting the unemployment rate will rise from 4.9 percent to 5.5 percent over the next two years despite the new stimulus," Angus Nicholson, market analyst at IG in Melbourne, wrote in a note.

"That makes it very likely that further cuts to the policy rate and expansions of the BoE's other easing measures will be forthcoming over the coming months, providing further downside risks to the pound," he said.

The British pound crawled up 0.2 percent to $1.3126 after retreating 1.7 percent overnight.

The U.S. Treasury 10-year note yield was little changed at 1.4972 percent after dropping 25 basis points overnight during a broad post-BoE rally in bond markets, which took the 10-year gilt yield  to a record low of 0.639 percent.

Yields on euro zone bonds such as German bunds also tumbled on Thursday as bond prices rose after the BoE news.

The declines in yields was "probably on speculation that the deterioration in the pound could well see policymakers at the (European Central Bank) and the Federal Reserve push back on the appreciation of their currencies as the race for a competitive currency continues," Michael Hewson, chief market analyst at CMC Markets in London, wrote in a note.

Wall Street ended Thursday little changed ahead of the jobs report, which will be scoured for clues as to whether it is strong enough to support a Federal Reserve rate hike as early as September.

Economists polled by Reuters expect U.S. employers to have added 180,000 jobs, compared with 287,000 in June.

"Based on our analysis, the payroll growth in July is likely to be pretty strong," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank. "I expect a figure above 200,000. That should be positive for the dollar."

The dollar slipped 0.1 percent to 101.07 yen , on track to fall 1 percent for the week. The euro gained 0.1 percent to $1.1143, set to end the week 0.2 percent lower.

The dollar index .DXY inched down 0.1 percent to 95.665 after gaining 0.2 percent on Thursday.

Gold XAU= was up 0.2 percent at $1,364.20 an ounce ahead of the payrolls report, heading for a 1 percent gain for the week.

Oil extended losses after soaring overnight following a modest stockpile drop at the U.S. delivery hub for crude futures, which also triggered some short-covering.

While the rally fizzled out on Friday, prices remained well above 3-1/2-month lows hit earlier this week.

U.S. crude fell 0.9 percent to $41.57 a barrel after surging 2.7 percent overnight. It's on track for a 0.1 percent decline for the week.

Global benchmark Brent crude futures  also slipped 0.9 percent to $43.89, heading for a weekly rise of 3.3 percent.

The Australian dollar hovered near a 3-week high, after the Reserve Bank of Australia said core inflation is likely to remain below target until 2018, leaving the door open to more policy easing following the cut in its benchmark rate to an all-time low of 1.5 percent this week.

The futures market is pricing in a 50-50 chance of another cut by year end.

The Aussie climbed 0.4 percent to $0.7659, and Australian shares also closed up 0.4 percent.

Reference: Nichola Saminather

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