Asia stocks edge up on optimism over global growth, dollar soft
TOKYO: Asian shares edged up on Monday on optimism about global growth, while the dollar was on the defensive as a subdued U.S. inflation outlook capped U.S. bond yields and raised questions about the Federal Reserve’s plans to tighten policy.
MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.4 percent while Japan’s Nikkei rose 0.1 percent. Trading was slow with many markets in the region closed for holidays to celebrate the end of Ramadan.
The prospect of solid global economic growth has kept alive investors’ optimism over world equities even as some markets, including Wall Street, have slowed down from a frenetic run due to high valuations.
Share prices have also been supported by relatively loose monetary policies in the developed world, with the Bank of Japan and the European Central Bank still pumping in funds.
While the U.S. Federal Reserve is gradually tightening its policy, investors think the pace of its tightening will be much slower than its policymakers want given subdued U.S. inflation.
Money market futures price in only about 50 percent chance of another rate hike by the end of the year, compared to Fed’s own projection of one more rate increase.
The 10-year U.S. Treasuries yield stood at 2.152 percent, not far from seven-month low of 2.103 percent hit in mid-June after data showed inflation undershot expectations for a third month in a row.
The 30-year yield hit 7-1/2-month low of 2.710 percent on Friday, making the yield curve the flattest in almost a decade. It last stood at 2.722 percent.
The lower yields have put the dollar on the defensive, though some market players say both Treasury yields and the dollar could rise if U.S. President Donald Trump manages to push through his healthcare bill in the parliament.
“There will be renewed focus on U.S. healthcare bill. Its passage in the parliament could lead to expectations that the administration will get down to stimulus next,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
Republican Senate leader Mitch McConnell has pushed for a vote on the bill before the July 4th Independence Day holiday recess that begins at the end of this week.
Yet he can afford to lose the support of only two Republicans in the face of unanimous Democratic opposition, while five Republican senators have said they will not support the bill in its current form.
The dollar stood at 111.29 yen, off last week’s high of 111.79.
The euro traded at $1.1194, slowly recovering from its three-week low of $1.1119 touched on Tuesday.
A strong reading in Germany’s Ifo business sentiment survey due at 0800 GMT could open the way for a test of $1.1296, its seven-month high hit earlier this month.
The euro was little damaged by the news that Italy began winding up two failed regional banks on Sunday in a deal that could cost the state up to 17 billion euros ($19 billion).
“This won’t cause a major financial crisis considering the current strength of the euro zone economy,” said Yukio Ishizuki, senior strategist at Daiwa Securities.
Oil prices ticked up after having fallen for five weeks in a row on concerns OPEC-led production cuts have failed to ease a global crude glut stemming from increased oil production in the United States.
U.S. energy firms added 11 oil rigs in the week to June 23, bringing the total count up to 758 , the most since April 2014, according to data from energy services firm Baker Hughes Inc.
Brent crude futures rose 0.5 percent to $45.78 per barrel from seven month lows of $44.35 hit last week.
U.S. West Texas Intermediate (WTI) crude futures fetched $43.22 per barrel, up 0.5 percent on the day and extending gains from their 10-month low of $42.05 set on Wednesday.
“There are some support near $40 in the WTI. People think that U.S. shale development will stop if it falls below $40,” said Tatsufumi Okoshi, senior economist at Nomura Securities.