Asian shares hold near 6-12-month high, fresh Sino-US trade talks awaited

A man looks at an electronic stock quotation board outside a brokerage in Tokyo, Japan, 1 October 2018 – Reuters

TOKYO (Reuters): Asian shares held near 6-12-month highs on Friday after upbeat US data and optimism in the tech sector helped calm some of the jitters sparked by the Federal Reserve’s cautious outlook on the world’s biggest economy.

Markets showed some signs of fatigue during the afternoon session as focus turned to a fresh round of Sino-US trade talks.

The opening in Europe is also expected to be subdued, with spreadbetters predicting Britain’s FTSE to slip 0.26%, Germany’s DAX to start flat and France’s CAC to edge up 0.22%.

MSCI’s broadest index of Asia-Pacific shares outside Japan was nearly flat, trimming earlier gains, but still not far off 6-12-month highs reached earlier in the day.

The info tech sector rose 0.8%, while Japan’s Nikkei average added 0.1%.

Many markets took on a more cautious tone after the early session gains, likely as they awaited another round of Sino-US talks. China’s Shanghai Composite, the blue-chip CSI 300 and Hong Kong’s Hang Seng dropped between 0.1 and 0.4% each.

Bloomberg reported on Friday that US officials downplayed the prospect of an imminent trade deal with Beijing, just as a US trade delegation headed by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin is set to visit China on 28-29 March.

On Wall Street, the S&P 500 gained 1.09% while the Nasdaq Composite rallied 1.42%, both hitting five-month highs.

Apple Inc led the tech sector’s advance, rising 3.7%, ahead of the company’s expected streaming service debut next week.

The Philadelphia SE Semiconductor Index soared 3.5%, coming within a striking distance of its all-time high marked about a year ago.

“I’d think optimism in the tech sector is the biggest driver now. It reflects expectations that the US and China will eventually reach a trade deal,” said Soichiro Monji, senior economist at Daiwa SB Investments.

Thursday’s US economic data was also upbeat as initial claims for jobless benefits fell more than expected and mid-Atlantic factory activity rebounded sharply.

The figures mollified worries about the US economic outlook after the Fed on Wednesday surprised investors by adopting a sharp dovish stance, anticipating no further interest rate hikes this year and ending its balance sheet roll-offs.

The dollar also jumped back, with its index against a basket of six major currencies rising to 96.299 from Wednesday’s 1-12-month low of 95.735.

The euro traded at $1.1380, almost flat on the day and off Wednesday’s 1-12-month high of $1.14485.

The dollar stood at 110.80 yen, having hit a five-week low of 110.30 on Thursday.

The benchmark US 10-year notes yield stood at 2.527% after having slipped to as low as 2.500 percent on Thursday, its lowest since early January last year.

The five-year yield dropped to 2.327%, below the current Fed funds rate around 2.40%, as fed funds rate futures price in about 50 percent chances of a rate cut this year.

No Fed boost for European stocks as banks fall

“The main market reaction to the Fed’s announcement was that it has become a consensus that the Fed’s next move is a rate cut,” said Naoya Oshikubo, senior manager at Sumitomo Mitsui Trust Asset. “As economic data from China and elsewhere has not bottomed out yet, investors will be looking at economic fundamentals for now. If there are improvements, then markets could roll back expectations of a Fed rate cut,” he said.

DoubleLine Capital’s Chief Executive Jeffrey Gundlach, who is often dubbed the “Bond King,” said on Thursday that the stock market “likes the fact that they (the Fed) aren’t going to give them any problems,” for now.

He added, however, the Fed’s cautious stance on raising rates could backfire by creating uncertainty in the economy and hurt the US central bank’s credibility.

Another cloud hanging over markets was Britain’s fraught moves to exit from the European Union, as the British pound was bruised anew by rising worries about a no-deal Brexit.

EU leaders said Britain could leave the European Union without a deal on 12 April if lawmakers fail next week to back Prime Minister Theresa May’s agreement with Brussels.

EU leaders gave May an extra two months, until 22 May, to leave if she wins next week’s vote in parliament.

The pound firmed 0.3% to trade at $1.3142, having dropped to $1.3004 the previous day. Against the euro, it hit one-month lows of 0.8722 on Thursday and last stood at 0.8654.

Oil prices eased from 2019 peaks as economic growth concerns hurt sentiment, pausing a three-month rally that was driven by OPEC-led supply cuts and US sanctions against Iran and Venezuela.

Brent crude oil futures inched up 0.1% to $67.95 per barrel while US crude futures stood flat at $ 59.98.