- Asian Stocks Rebound Amid Dollar Retreat as Trump Shock Fades
Asian stocks rose for the first time in four days and the dollar weakened versus most peers as investors questioned whether financial markets may have overreacted over the past week to Donald Trump’s shock U.S. election victory.
Energy shares led gains on the MSCI Asia Pacific Index after crude oil jumped on Tuesday by the most in seven months, spurred by OPEC efforts to agree output cuts. Bloomberg’s dollar index extended the last session’s retreat from a nine-month high as a gauge of expected exchange-rate volatility fell for the first time since Trump’s election win. Copper declined for a second day and Japan’s 10-year bond yield stayed at zero, having ended almost eight weeks of negative rates in the last session.
Trump’s victory triggered routs in global bonds and emerging markets, while boosting the dollar and industrial metals on speculation his infrastructure spending plans will spur inflation and prompt the Federal Reserve to speed up the pace of U.S. interest-rate increases. Post-election moves in those assets are being pared after their relative strength indexes swung to extreme levels, an indication that initial price reactions were excessive.
“Things might have got a little bit overdone with the market having got very excited about reflation and what it’s going to mean,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2 billion. “Most of the sharp adjustment is behind us now and from here you’ll need to see tangible evidence of some of those policy moves.”
Volatility in financial markets has died down this week, though U.S. monetary policy is at the forefront of investors’ minds. Fed Governor Daniel Tarullo said Tuesday an interest-rate rise next month is more likely than before and fed funds futures imply a 94 percent probability of an increase. Fed Presidents James Bullard, Neel Kashkari and Patrick Harker are all scheduled to speak Wednesday and may shed more light on the likely trajectory of borrowing costs in the world’s biggest economy.
Stocks
The MSCI Asia Pacific Index added 0.9 percent as of 1:03 p.m. Tokyo time, with a gauge of energy stocks climbing 1.5 percent. Japan’s Topix index rallied to a nine-month high, driven by gains in banking stocks as investors bet earnings at financial companies will benefit from the recent pickup in bond yields. The Topix Banks Index has jumped more than 20 percent in five days, the steepest surge since 2008.
“It’s gradually turning to a bull market,” said Yoshinori Shigemi, a global markets strategist at JPMorgan Asset Management in Tokyo. “There are two factors – one is faster growth in the U.S. economy, and another is a stronger dollar, meaning a weaker yen.”
Tencent Holdings Ltd. gained more than 2 percent in Hong Kong before Asia’s largest Internet company reports earnings.
Philippine stocks rebounded from an eight-month low and Indonesian shares climbed from their lowest level since July.
Futures on the S&P 500 Index added 0.1 percent after the underlying gauge climbed 0.8 percent on Tuesday, when the Dow Jones Industrial Average closed at a record high. Futures on the U.K.’s FTSE 100 Index rose 0.4 percent.
Currencies
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.1 percent. It declined by a similar amount on Tuesday after surging more than 3 percent in the four trading days following the Nov. 8 U.S. election. The won rose 0.3 percent, while the yen and the euro strengthened 0.2 percent.
“We are starting to see the markets settle a bit after what seemed to be a pretty quick and vicious move into oversold territory,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “We are beholden to headline risk and further details that come out from Trump as his new administration is forming. Volatility will still be high and uncertainty will be higher.”
The JPMorgan Global FX Volatility Index dropped from a four-month high on Tuesday.
Commodities
Crude oil declined 0.3 percent to $45.66 a barrel in New York, after jumping 5.8 percent on Tuesday. Members of the Organization of Petroleum Exporting Countries are holding discussions regarding how to share output cuts pledged at a September meeting in Algiers. The group said it would reduce output to a range of between 32.5 million and 33 million barrels a day. The organization pumped 34.02 million barrels a day in October, according to a Bloomberg News survey.
Copper and aluminum declined in London, extending their retreats from one-year highs reached last week, and zinc held near its highest close since 2010. Metals rallied last week on a combination of increased speculative interest in China and optimism Trump’s pledge to spend as much as $1 trillion on infrastructure will boost demand. The 14-day relative strength index for the London Metal Exchange Index climbed as high as 87 last week, well above the 70 threshold that signals to some traders prices may have risen too far, too fast.
“Investors took the opportunity to lock in gains after some big moves over the past week,” Australia & New Zealand Banking Group Ltd. said in a note on Wednesday. “Skepticism grew about the impact that Trump’s infrastructure spending program would have on demand.”
Bonds
The yield on U.S. Treasuries due in a decade was little changed at 2.22 percent, after retreating from its highest level of the year in the last session. It’s still up almost 40 basis points since Trump’s election, having surged amid growing expectations the Fed will boost interest rates next month and beyond.
Trump’s election helped drive a bond-market rout that has pushed Bank of America Corp.’s Global Broad Market Index down 1.5 percent in November, heading for the biggest monthly decline since May 2013. The president-elect has pledged to cut taxes and boost spending on infrastructure.
Japan’s 10-year government bonds were little changed following a four-day slide that lifted their yield to zero from minus 0.075 percent.
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