Hang Seng Index, Nikkei rise as rate, oil fears recede

Equities saw a rally on Monday as the Federal Reserve's decision to potentially hold off on an interest rate hike this month gave investors some breathing room following an unexpected decline in US job creation data. This alleviated concerns about inflation, which had been a significant worry. In Hong Kong, the Hang Seng Index rose 68 points, or 0.3 percent, to 24,040, while tech stocks were up 25 points, or 0.6 percent, at 4,183. Meanwhile, the China Enterprises Index climbed 21 points, or 0.3 percent, to 8,051.

These gains followed the release of US non-farm payrolls data, which showed only 29,000 jobs were created in September, significantly lower than the expected 90,000. The previous two months' data were also revised downwards, with July showing job losses instead of gains. This led to a rapid reevaluation of the likelihood of a Fed rate hike, with the CME's FedWatch tool now showing a 20 percent chance, down from over 65 percent early in the week.

Higher borrowing costs have emerged as a result, with 10-year US Treasury yields hitting a 24-year high due to persistent high inflation, government spending, and increased borrowing for AI investments. Stephen Innes of SPI Asset Management noted that the hiring trend has settled into a comfortable Goldilocks zone of 40,000 to 60,000 jobs per month.

Core PCE inflation remains at three percent year over year, but the short-term pulse of inflation has cooled, suggesting that October might not require aggressive action from the Fed, unlike December, which could still present more challenges.

Tech-heavy markets in Tokyo benefited from the reduced borrowing costs, with the Nikkei posting a three-month closing high of 69,946, up 1,637 points or 2.4 percent. This rise was driven by AI-related stocks following Wall Street's gains the previous week. The broader Topix index also rose 54 points, or 1.33 percent, to 4,145. Holidays were observed in Seoul and Shanghai.

The mood was further buoyed by the G7's decision to release 100 million barrels of diesel and crude oil from their reserves over four months and to refrain from export restrictions on energy. This move came after pressure from US President Donald Trump, who advocated for tapping the European Union's strategic diesel reserves or facing a US ban on diesel exports.

Additionally, Saudi Arabia reduced the price of its benchmark grade to Asia by $5 below the regional benchmark. While exports of crude oil from the Middle East, excluding Iran, surpassed pre-war levels, the situation for fuels like diesel remains tight due to refinery damage during the conflict.