Asia shares rebound in sharp turnaround from Trump shock

Reuters: Asian shares rebounded on Thursday and the dollar firmed in a remarkable snapback from the shock of Republican Donald Trump’s presidential victory, though the speed of the reversal left some market watchers scratching their heads.

MSCI’s broadest index of Asia-Pacific shares outside Japan bounced 1.8% after slumping 2.4% on Wednesday as global markets plunged on signs that Trump was sweeping to power.

The Nikkei duly recouped all of Wednesday’s 5% loss and more to trade up roughly 6% as the yen weakened following the previous session’s surge.

Despite the sharp election recoil in global markets initially, U.S. investors opted to focus instead on Trump’s key policy priorities, which include generous tax cuts and higher infrastructure and defence spending, along with deregulation for banks.

Australian stocks soared 2.8% in the largest daily gain since late 2011 and Shanghai rose 1.1%.

Amid expectations of higher spending and inflation under Trump, yields on U.S. Treasury 10-year notes reversed an initial plunge to 1.716% and bolted to 2.09% overnight, the highest since January.

The net rise of 21 basis points was the largest daily increase since July 2013.

The dollar carved out a staggering range, rebounding along with the surge in U.S. yields from as low as 101.19 yen all the way to 105.96 early on Thursday. It last stood at 105.33.

Helping boost the dollar, investors again revised the outlook for U.S. interest rates in the wake of Trump’s victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30% to as high as 80%.

The dollar index against major currencies recovered from a trough of 95.885 plumbed on Wednesday to around 98.519.

Having stretched as high as $1.1300 in the initial panic over Trump’s win, the euro then slumped all the way to $1.0906 overnight - a move of roughly four cents.

Meanwhile the action was no less noteworthy on Wall Street, where S&P 500 futures had shed 5% at one stage in Asia on Wednesday only to stand 1.1% higher late in the day.

The Dow jumped 1.4%, while the S&P 500 and the Nasdaq both added 1.11%. Trading volume was the highest since June, when Britain voted to abandon the European Union.

The CBOE Volatility index, a gauge of investor anxiety, fell 23% and was on track for its biggest daily drop since late June.

S&P futures were little changed in Asian trade on Thursday.

Ratings agency S&P Global later affirmed the AA+ rating of the United States, but noted uncertainty over the future path of government debt would prevent any upgrade.