Emerg­ing Asia pro­pels world stocks to new high

Kuwait Times - - BUSINESS -

A weak US dol­lar com­bined with up­beat Chi­nese data to lift emerg­ing mar­ket and Asian shares to lev­els not seen in more than two years and global stocks to an all-time high yes­ter­day. With the world’s most widely-used currency near a 10-month low and bond yields slip­ping, it is cheaper for emerg­ing coun­tries to ser­vice their debts in­vestor ap­petite for riskier as­sets such as equities has risen. Af­ter de­cent gains in Asia on the back of pos­i­tive signs from global eco­nomic pow­er­house China, MSCI’s world stocks in­dex looked set for a ninth day of gains which would mark its long­est win­ning streak since Oc­to­ber 2015.

“Most emerg­ing mar­kets are do­ing quite well at the mo­ment, es­pe­cially in Asia. The fig­ures for China are pos­i­tive,” said Mar­i­jke Zewuster, Head EM re­search, ABN AMRO. “If you look at the un­der­ly­ing fig­ures they are rel­a­tively strong at the mo­ment.”

Dol­lar re­mains hob­bled

The dol­lar’s tra­vails ex­tended into yes­ter­day as Don­ald Trump faces a bat­tle to push through his much-vaunted eco­nomic agenda, but eq­uity traders took the news in their stride.

The euro eased slightly yes­ter­day against the dol­lar, hav­ing surged the pre­vi­ous day to a near 15-month pin­na­cle at $1.1583 — last seen in May 2016. How­ever, af­ter a blis­ter­ing rally in the months fol­low­ing Trump’s Novem­ber elec­tion win-fu­elled by bets his tax cuts and big spend­ing plans would fan in­fla­tion-the green­back re­mains hob­bled by a con­gres­sional log­jam and a se­ries of crises en­gulf­ing the White House. A cru­cial blow was struck Mon­day when it was clear his Re­pub­li­can party would not be able to muster enough sen­a­tors to pass con­tro­ver­sial health­care re­forms, throw­ing into doubt his abil­ity to pass big-ticket mea­sures. With in­fla­tion stuck be­low the Fed­eral Re­serve’s two per­cent tar­get and prospects fad­ing of any eco­nomic re­forms, traders are ques­tion­ing whether the Fed will raise in­ter­est rates for a third time this year. Just months ago there had been bets on four in­creases.

“The mar­ket has been wait­ing for the Trump fail­ure cas­cade to be­gin and yes­ter­day’s health care head­lines once again bring into ques­tion the ad­min­is­tra­tion’s abil­ity to en­act on their key leg­isla­tive prom­ises, leav­ing in­vestors in limbo and the dol­lar sag­ging,” an­a­lyst Stephen Innes at trad­ing firm Oanda.

The green­back was only marginally up against its ma­jor peers but re­mained stuck near multi-month lows, with the euro en­joy­ing some sup­port from ex­pec­ta­tions the Euro­pean Cen­tral Bank will soon be­gin to re­duce stim­u­lus. The bank will hold its next pol­icy meet­ing to­day and boss Mario Draghi’s state­ment will be pored over for clues about its timetable as the eu­ro­zone econ­omy con­tin­ues to im­prove.

“As the ECB meet­ing gets closer... at­ten­tion will in­creas­ingly fo­cus on the like­li­hood of any fur­ther hawk­ish com­men­tary from the cen­tral bank that could squeeze the euro even higher against the dol­lar,” noted IG an­a­lyst Chris Beauchamp.

An­a­lysts said the slight gains in the dol­lar were down to ex­pec­ta­tions the Euro­pean Cen­tral Bank and the Bank of Ja­pan may strike dovish tones when they meet to­day, which could dent re­cent strength in the euro and the Ja­panese Yen. The ECB is ex­pected to ad­just its lan­guage, but sub­stan­tive changes to pol­icy will likely come later in the year. The BOJ is ex­pected to raise its growth fore­cast but cut its in­fla­tion out­look.

The di­min­ished prospect of fis­cal spend­ing in the US has been a boon to bonds, es­pe­cially as a run of soft US in­fla­tion read­ings had less­ened the risk that the Fed­eral Re­serve would need to be ag­gres­sive in re­mov­ing its stim­u­lus.

Yields were broadly lower across the euro zone for a sec­ond straight day yes­ter­day, with US Trea­sury yields trad­ing near three-week lows. “The ques­tion marks over US re­form on the one hand, and the un­der- ly­ing eco­nomic growth mo­men­tum on the other hand are likely to keep the US within its cur­rent goldilocks sce­nario for longer,” an­a­lysts at Mor­gan Stan­ley said in a note. “Glob­ally, fi­nan­cial con­di­tions tend to im­prove when the dol­lar is weak and vice versa,” they added.

Euro­pean stocks made de­cent gains sup­ported by a slew of up­beat earn­ings from firms and Wall Street was set to open a touch higher. But the most eye-catch­ing stock moves were in Asia. Those gains come on the back of data this week which showed China’s econ­omy ex­pand­ing at a faster-than-ex­pected 6.9 per­cent clip in the sec­ond quar­ter, set­ting the coun­try on course to com­fort­ably meet its 2017 growth tar­get.

MSCI’s in­dex of Asia-Pa­cific shares ex Ja­pan and its in­dex of emerg­ing mar­ket shares were both up 0.6 per­cent at their high­est since April 2015. Shang­hai’s bluechip CSI300 in­dex rose 1 per­cent and back to­ward an 18-month peak, while Aus­tralia’s main in­dex added 0.9 per­cent. The strength of the yen lim­ited Ja­pan’s Nikkei to a rise of 0.1 per­cent.

Bank of Amer­ica Merrill Lynch said it was re­vert­ing to a bullish po­si­tion on Asian and emerg­ing mar­ket equities, hav­ing been “tac­ti­cally neu­tral” since late Fe­bru­ary.

It said more re­silient growth es­ti­mates and an as­sump­tion that in­fla­tion is un­likely to rise was be­hind the de­ci­sion, pick­ing out China, Korea and Tai­wan as buy­ing op­por­tu­ni­ties. Oil prices traded a touch higher, adding to gains seen on Tues­day as the dol­lar slipped. —Agen­cies

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