Asian shares climb ahead of US jobs data

Asian equities surged on Friday, as investors took advantage of a global market rally ahead of key US jobs data. Bonds experienced a brief reprieve following comments from a top US Federal Reserve official, which reduced expectations of an imminent rate hike and weakened the dollar. The yen strengthened, reaching within striking distance of its 155.2 level from late July.

Fed Governor Christopher Waller's remarks suggested some signs of disinflation, increasing the likelihood of holding interest rates steady at the upcoming policy meeting. As a result, futures markets reduced the probability of a rate hike this month to 50%, down from around 63% the previous day. Waller's speech reinforced analysts' view that the conditions for a rate hike remain stringent, barring his support.

MSCI's broad Asia-Pacific index of non-Japanese shares rose 1%, mirroring Wall Street gains, but the index was still down 0.4% for the week. Wall Street futures and EURO STOXX 50 futures were flat as traders awaited the US employment report for August, with expectations centered on a job increase of 56,000 and a steady unemployment rate of 4.1%.

Overnight US economic data indicated a pickup in service sector activity and a jump in prices paid to a three-year high. The Beige Book survey also revealed a slight uptick in economic activity. Bonds received relief after Waller's dovish comments, with two-year yields holding steady around 4.3381% and ten-year yields remaining unchanged at 4.7620%.

Longer-dated yields remained cautious due to lingering inflation concerns and the ongoing Iran-Iraq conflict. Oil prices hovered near a six-week high, with Brent crude futures climbing 7% this week to $95.52 a barrel. The dollar's decline provided limited support, trading at 98.96 against major currencies, down 0.6% overnight. This depreciation fueled gains in the yen, which strengthened further after jumping 1.8% overnight, with markets now forecasting a 75% chance of a Bank of Japan interest rate hike in September.

While a rate hike in October is priced in, markets are considering the possibility of a softer non-farm payrolls report and a hawkish Bank of Japan meeting in two weeks. Commodity markets saw gold holding steady at $4,470 an ounce after an overnight 2% rally, but it was expected to end the week with minimal change.