Asia stocks join rally, uncertainty keeps bonds bid

Thursday, 30 June 2016 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Asian share markets joined a global rally on Wednesday as the immediate impact of Britain’s vote to leave began to wane and investors wagered central banks would have to ride to the rescue with more stimulus measures.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%, but remained a long way from its pre-vote levels. Japan’s Nikkei climbed 1.1%, while Australian stocks added 1%.

Any bounce was welcome, given global equity markets shed $ 3 trillion in value in the two days following Britain’s shock vote, according to S&P Dow Jones Indices. Investors also pointed to solid US economic data as helping to steady the ship. Yet Britain’s course out of the EU remains unknown, leaving the future of the entire bloc and its currency an open question.

“The only certainty in Europe is uncertainty,” said analysts as Australia and New Zealand Bank in a note.

“European leaders appear to want to move forward with Brexit plans as quickly as possible, but political turmoil within Britain suggests a quick turnaround is unlikely.”

The unease was evident in sterling which managed only a meagre bounce to $ 1.3350 GBP=, not that far from a 31-year low of $ 1.3122 and down 10% from early Friday.

The euro regained a little ground to $ 1.1072 EUR=, while the safe-haven yen faded a touch to 102.60 per dollar JPY=.

For now, investors are counting on central banks to step in with fresh stimulus to support markets over time.

Japanese Prime Minister Shinzo Abe urged the Bank of Japan to provide ample funds to ensure market liquidity.

In the first of Federal Reserve policymakers to comment since the vote, Governor Jerome Powell said it had shifted global risks “to the downside.” That only reinforced market expectations the Fed will no longer be able to hike US rates this year, and could even be forced to cut if the domestic economy falters.

On Wall Street, the Dow rose 1.57%, while the S&P 500 gained 1.78% and the Nasdaq 2.12%. Badly beaten-down financials and tech stocks were among the top gaining sectors.

The calmer mood was reflected in the CBOE Volatility Index .VIX which fell about 21% to close to where it was before the vote. It was its largest one-day percentage decline since August 2011.

Aiding sentiment were data showing the US economy grew at a 1.1% annualised rate in the first quarter, rather than the 0.8% pace reported last month.

Yet concerns about the impact of Brexit on global growth and all the talk that central banks might have to ease anew to offset it, kept sovereign bonds well supported.

Yields on US 10-year notes US10YT=RR held at 1.461%, just above a near four-year low of 1.406% hit on Friday. German DE10YT=RR and Japanese bonds JP10YT=RR are well into record territory and paying negative yields.

Indeed, all Japanese bonds out to 30 years now pay less than 0.1%, a nightmare for pension funds and insurers desperate for a “decent” return.

In commodity markets, gold stepped back after two heady days. Spot gold XAU= was holding at $ 1,314.40 an ounce, but off an earlier low of $ 1,305.23.

Oil prices gained on potential supply outages and drawdowns in crude. US crude oil futures CLc1 were up 28 cents at $ 48.13, while Brent crude LCOc1 rose 17 cents to $ 48.75.