Asian shares buoyed by US data, accommodative central banks
Saturday, 3 August 2013 00:00
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Reuters: Asian shares advanced on Friday after brisk US factory activity data and a commitment to easy monetary policy by European central banks and the Federal Reserve buoyed Wall Street to record highs overnight.
Stirred by optimism on the US economic recovery, the benchmark US Treasuries edged closer to a two-year high and triggered a sharp rebound in the dollar from a six-week low hit against a basket of currencies on Wednesday.
A strong reading in the upcoming US payrolls data, due at 1230 GMT, is likely to stoke further momentum in markets, possibly pushing the 10-year US yield to new two-year highs.
“Essentially, the market is waiting for a global economic recovery in the latter half of this year,” said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.
“We had a decent Chinese manufacturing data yesterday. Periphery European countries are also improving recently. And central banks have confirmed that easy policy will be in place. These are the reasons why a rise in bond yields are not destabilising share prices today unlike in June,” he added. The European Central Bank and the Bank of England both ended policy meetings by leaving interest rates at record lows on Thursday, a day after the Fed said the US economy still needed its support and avoided any mention of a change to its stimulus measures.
The Nikkei share average rose 1.4% while ex-Japan Asian shares gained 0.4%.
Shares in South Korea and Hong Kong hit two-month peaks while Australian stocks rose to a 2 1/2-month highs.
On Thursday, the Dow Jones index rose 0.8% and S&P 500 gained 1.3% to end above 1,700 for the first time ever.
The dollar index held onto Thursday’s gains of 1.1%, its biggest one-day rally in a month, to stand at 82.318, extending its rebound from six-week low of 81.407 hit on Wednesday.
The broad rally in the dollar saw the euro ease to US$ 1.3192, flat on the day but off Wednesday’s six-week high of US$ 1.3345, while the yen fell towards 100 per dollar, well off this week’s high around 97.58.
The Australian dollar hit a three-year low as the currency was also smarting from dovish comments by the Reserve Bank of Australia (RBA) on Tuesday.
That prompted markets to not only price in a cut in interest rates next week, but a second easing before year-end, shrinking the yield premium offered by Australian over US debt to its lowest since 2008. <AUD/>
On Thursday, US data underlined the markets’ optimism about the recovery in the world’s largest economy. The Institute for Supply Management index of US national factory activity for July rose to its highest level since June 2011, easing concerns a slowdown in emerging economies may take a toll on US growth.
A separate report also showed first-time applications for jobless benefits hit a 5-1/2-year low last week, boding well for the payroll data.
A monthly rise in hiring in the 200,000 area, analysts say, should keep the Fed on track to start to pare its US$ 85 billion purchases in Treasuries and mortgage-backed securities, as early as at its September 17-18 meeting.
“The market has digested the idea that the US tapering will occur at some point,” said Andrew Doherty, head of equities at Morningstar, an independent research house based in Sydney.
“There’s been a reappraisal and revaluation that has seen moves back into high-yielding stocks providing decent returns for investors.”
Expectations of a gradual reduction in the Fed’s bond buying drove the 10-year US Treasuries yield to 2.712%, within sight of a two-year peak of 2.755% hit last month.
US crude oil futures prices were headed for their biggest weekly gain in a month, having risen three% this week on upbeat global economic data and supply disruptions in Africa and Iraq. It last traded up 0.6% at US$ 108.64 per barrel.
