Business Maverick

Business Maverick

Asian equities extend risk rally as dollar weakens: markets wrap

Asian equities extend risk rally as dollar weakens: markets wrap
A man is reflected in a window while using a smartphone in Hong Kong, China, on Wednesday, 22 November 2017. (Photo: David Paul Morris/Bloomberg)

Shares in Asia climbed on Monday to build on gains made on Wall Street, while the euro advanced as investors weighed the prospect of Europe following the Federal Reserve with more outsized interest-rate hikes.

Japanese and Australian equities rose, and US futures were steady after the S&P 500 and Nasdaq 100 snapped three-week losing streaks on Friday. Crude oil dropped more than 1.5% amid concerns that global demand is softening. Markets in China, Hong Kong and South Korea are closed for holidays on Monday. 

The euro led gains versus the greenback after Bundesbank president Joachim Nagel signalled support for further interest-rate hikes in Europe. The yen held most of Friday’s rebound after officials in Tokyo increased their jawboning of the currency over the weekend. 

Investors are also awaiting August US inflation data on Tuesday, with headline CPI expected to cool to an 8% a year pace while the core measure that excludes food and energy is seen accelerating. Traders almost fully expect another jumbo-sized Fed hike next week, following two 75-basis-point increases. 

“A downside surprise in US CPI is likely more of a concern and that could see the dollar weakening further,” Charu Chanana, a strategist at Saxo Capital Markets, said on Bloomberg Television. “We’ve seen some glimpses of that, you know, towards the end of last week. That could potentially be a risk to watch, particularly this week.”

Fed Bank of St Louis president James Bullard said he was leaning “more strongly” toward a third straight boost of that magnitude. His Kansas City counterpart Esther George noted officials have a “clear-cut” case for continuing to remove monetary support. 

Markets also have to digest the implications of Ukraine’s counter-offensive, after its forces continued their rapid advance in the Kharkiv region, exploiting a retreat of Russian defences.  

The rebound in risk assets and the retreat in the dollar at the end of last week contrast with the hawkish remarks from Fed officials. That stance, and recession worries, has driven equities down to nearly oversold levels. The Levkovich Index, a sentiment gauge, fell to -16 last week, a hair away from the -17 level that defines panic. Bank of America’s bull-and-bear indicator slid to the “maximum bearish” level – often seen as a contrarian buy signal.

Signs of weakening demand may underscore the potential that policy makers will be willing to slow the pace of tightening going forward. West Texas Intermediate sank toward $85 a barrel amid concerns the outlook for consumption is worsening as global growth slows and China maintains its strategy of controlling Covid-19 by curbing activity.

Here are some key events to watch this week:

  • US CPI, Tuesday
  • UK CPI, Wednesday
  • US PPI, Wednesday
  • US business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
  • China home sales, retail sales, industrial production, fixed assets, surveyed jobless rate, Friday
  • Euro area CPI, Friday
  • US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures were little changed as of 12:30pm in Tokyo. The S&P 500 gained 1.5% on Friday
  • Nasdaq 100 futures were also flat. The Nasdaq 100 climbed 2.2% on Friday
  • The Topix index increased 0.7%
  • Australia’s S&P/ASX 200 Index jumped 1.1%
  • Taiwan’s Taiex advanced 1.7%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%
  • The euro rose 0.4% to $1.0082 against the dollar
  • The Japanese yen was 0.4% weaker at 143.01 versus the dollar
  • The offshore yuan was down 0.1% at 6.9443 per dollar

Bonds

  • The yield on 10-year Treasuries was up one basis point to 3.32%
  • Australia’s 10-year bond yield was little changed at 3.56%

Commodities

  • West Texas Intermediate crude slipped 1.5% to $85.46 a barrel
  • Gold was 0.2% lower at $1,713.88. BM
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