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Asia stocks, US futures climb as dollar weakens: markets wrap

Asia stocks, US futures climb as dollar weakens: markets wrap
A worker lifts a gold bullion bar from a conveyor machine at the Rand Refinery Ltd. plant in Germiston, South Africa, on Wednesday, 16 August 2017. (Photo: Waldo Swiegers/Bloomberg via Getty Images)

Asian shares rose alongside US futures as investors looked beyond further stress among regional American banks to the prospect of the Federal Reserve reversing its policy tightening campaign.

Stocks in Hong Kong opened higher while Australian stocks erased a morning decline, tracking gains in US futures after New York benchmarks closed lower on Thursday. Bourses in Japan and South Korea were closed for a holiday.

A gauge of Asian shares is set for its best week in five, led by a 1.1% increase in the financial sector. The advance indicates lenders across the region are relatively insulated from the US banking turmoil, which has dragged bank stocks there down more than 10% this week. 

The Bloomberg dollar index fell for the fourth day and faces its worst week in more than a month. The 10-year Treasury yield rose on Wednesday while Australian and New Zealand yields were broadly flat on Friday. Treasuries won’t trade in Asian hours given the holiday in Japan.

Another unsettling round of trading halts hit US lenders including Western Alliance Bancorp, PacWest Bancorp and First Horizon in a deepening rout that boosted havens including the yen and gold. 

Apple rose in late hours after reporting earnings. Nevertheless, Wall Street’s fear gauge, the Cboe Volatility Index, spiked to hit the key 20 mark. That’s a stark contrast with the calm that prevailed in markets for the most part in April and saw the measure dropping below 16 just last week.

ANZ Group Holdings shares rose 1.1%, after the lender’s first-half profit met analyst expectations. Shares in Macquarie Group dropped 0.5% after a slowdown in dealmaking overshadowed its consensus-beating earnings results.  

“We’re cautious on banks across the region,” Jonathan Garner, chief Asia and emerging markets strategist for Morgan Stanley, said in an interview with Bloomberg Television. “ When we look at Australia, the further hike from the RBA was not expected by the market and we have an inherently leveraged economy on the consumer side. That does raise issues going forward on credit quality for the banks.”

Back in the US, investor confidence remains fragile after a string of bank failures and despite Fed chair Jerome Powell’s assurance on Wednesday that authorities were closer to containing the crisis. Smaller lenders are under pressure after a year of rate hikes hammered the value of their bond holdings and drove unrealized losses to an estimated $1.84-trillion.

“The acute phase of bank turmoil may not be over, and policymakers need urgently to recognise that,” said Krishna Guha, vice chairman at Evercore ISI. “The problem is that their financial stability policy options are limited.”

Jobs report

Traders are also gearing up for Friday’s key jobs report, following data that showed applications for US unemployment benefits rose by the most in six weeks while continuing claims fell. Even as the labour market starts showing some weakness, it’s still cooling at a much slower pace than other economic indicators in the wake of an aggressive tightening campaign by the Fed.

“In our view, the Fed is very unlikely to cut unless there’s severe financial stress and/or a recession is imminent — stocks likely go down in both scenarios,” said Chris Senyek at Wolfe Research.

Meantime, fears about a political standoff over the US debt limit helped drive up rates on short-term Treasury bills, pushing them over 10-year yields by the most in at least three decades. The risk that Congress will fail to act drove three-month Treasury bill yields to over 5.25%, with them hitting as much as about 2 full percentage points over 10-year yields on Thursday. That’s the most since the data compiled by Bloomberg began in 1992. 

In other markets, oil rose at the start of trading in Asia after repeated signs of dwindling demand spurred a crash in the commodity that has seen it lose more than 10% this week. Gold held gains of around 3% this week. BM/DM

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