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Asian Shares Rally on Optimism Over Fed Rate Cuts and China’s Economic Outlook; Yen Weakens

Asian stocks surged to their highest levels in over a year on Monday, fueled by renewed optimism that the Federal Reserve would likely implement interest rate cuts this year. Additionally, the yen weakened following Tokyo’s suspected currency intervention, further contributing to market optimism.

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With Japan observing a holiday, trading activity in Asia was relatively subdued. However, markets in mainland China experienced a positive start after an extended break, propelling MSCI’s broadest index of Asia-Pacific shares outside Japan to its highest level since February 2023, with a gain of 0.53%. China’s blue-chip index also surged by 1.5%.

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Last week, Chinese offshore shares posted significant gains while mainland markets were closed for the Labour Day holiday. Hong Kong’s Hang Seng Index saw a 4.7% increase last week, and although it experienced a slight dip of 0.1% on Monday, it had previously registered its longest daily winning streak since 2018.

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Currency markets also witnessed notable movements, with the onshore yuan reaching a six-week high against the dollar, and its offshore counterpart strengthening by over 1% last week. This rally came amid a supportive policy tone on fiscal policy from China’s Politburo meeting, coupled with signs of a strengthening Chinese economy.

The broader market rally across Asia received an additional boost from Friday’s U.S. nonfarm payrolls report, which suggested a cooler job market than expected, reinforcing expectations of Fed rate cuts this year.

Meanwhile, the dollar maintained stability on Monday, while the euro and sterling edged lower. Traders remained vigilant for further volatility in the yen following last week’s suspected intervention from Japanese authorities to stabilize the currency.

In commodity markets, Brent futures rose by 0.33% to $83.23 a barrel, and U.S. crude futures edged 0.36% higher to $78.39 per barrel. Gold prices also climbed by 0.4% to $2,311.47 an ounce.

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