Asia stocks bounce on firmer Chinese lead, pound steadies

TOKYO (Reuters) – Asian stocks bounced on Wednesday, led by Chinese markets after a report showed growth in the country’s service sector accelerating despite broader economic headwinds, while the pound halted its decline on hopes a no-deal Brexit may yet be averted.

The Shanghai Composite Index added 0.45% while the blue-chip CSI300 index gained 0.5% after activity in China’s services sector expanded at the fastest pace in three months in August, according to a business survey.

MSCI’s index of Asia-Pacific shares outside Japan snapped two days of losses and gained 0.5%.

While some markets in Asia enjoyed gains, sentiment in the wider region remained subdued amid worries about a global recession.

Data on Tuesday showed the U.S. manufacturing sector contracted in August for the first time since 2016 amid worries about a weakening global economy and rising trade tensions between China and the United States, the Institute for Supply Management’s (ISM) report on Tuesday showed.

Australian stocks lost 0.75% and Japan’s Nikkei was little changed.

According to CME’s FedWatch tool, traders have almost fully priced in a 25 basis point (bp) interest rate cut at the Fed’s Sept. 17-18 policy meeting while expectations for another 25 bp reduction being implemented at the October meeting have risen to 61% from 53% over the past month.

The 10-year U.S. Treasury yielded 1.474% after stooping to 1.429% on Tuesday, its lowest since July 2016.

“As the decline in U.S. yields show, the markets will be urging the Fed on to do more even though a September rate cut is already priced in,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

POUND FINDS FOOTING FOR NOW

Sterling was last up 0.1% at $1.2097 after falling on Tuesday to $1.1959, the lowest level since October 2016.

The pound’s bounce came after a British cross-party alliance defeated Prime Minister Johnson in an effort to block a “no-deal” Brexit, leading the premier to push for a snap election.

The dollar index against a basket of six major currencies stood at 98.938 after rising overnight to 99.37, its highest level since May 2017, having lost some ground in the wake of Tuesday’s poor ISM reading.

The euro was steady at $1.0973 after sliding to a 28-month low of $1.0926 overnight as investors braced for a potential interest rate cut by the European Central Bank next week.

U.S. crude oil futures rose 0.5% to $54.22 per barrel, trimming some of the previous day’s large losses. The contracts had shed more than 2% on Tuesday after the weak U.S. ISM data raised concerns about a weakening global economy.

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