Shares edge higher as US Dollar rally pauses

JOHANNESBURG – shares nudged higher yesterday, tracking small gains on Wall Street, while the United Sates (US) Dollar paused after a sharp rally as month-end flows lift sentiment and investors adjust to expectations of more interest rate hikes.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.25 per cent higher but was set to end the month down about six per cent. Japan’s Nikkei rose 0.44 per cent, while Australia’s S&P/ASX 200 index gained 0.51 per cent.

China shares were up 0.4 per cent while Hong Kong’s Hang Seng index was one per cent higher but was on track to end its three-month winning streak as the China reopening rally loses steam.

The reopening story does not seem to be providing much uplift, ING economists said.

China shares have also been weighed down by rising geopolitical tension, with US-China relations the dominant uncertainty at the forefront of investor minds.

ActivTrades market analyst Anderson Alves said monthend flows are likely to drive short-term price action as traders rebalance portfolios and market exposure.

Monitoring

“Investors are likely to be monitoring any escalation from the Russia-Ukraine war,” Alves said. “Any concrete action from China in support of Russia could be seen as a strong rationale for a derisk and deleverage from Asian exposure.”

Overnight, US stocks eked out a slight gain as investors engaged in bargain hunting after last week’s steep losses, as jitters persisted about coming interest rate hikes to tame a stubbornly high inflation rate.

Data on Monday showed US core capital goods orders accelerated in January, beating forecasts, while contracts to buy previously owned US homes rose the most in more than two and half years in January.

Monday’s data comes after a hotter-than-expected personal consumption expenditure report on Friday reinforced expectations of the US Federal

Reserve needing to stay on its hawkish path for longer.

Fed futures now reflect rates peaking at about 5.4 per cent, implying at least three more hikes from the current 4.50 per cent-4.75 per cent band, and some chance of 50 basis points in March.

Rates

Barclays and NatWest on Monday said they believe the Fed could raise rates by as much as half a percentage point in March, well above the quarter-point that markets have priced in.

In the currency market, sterling was last trading at US$1.206, down 0.02 per cent on the day, having jumped 1 per cent overnight after Britain struck a new trade deal with the EU, which brightened the outlook for the post-Brexit UK economy.

The Euro was down 0.07 per cent to US$1.06, after rising 0.6 per cent on Monday.

The Dollar index, which measures US currency against six other peers, rose 0.048 per cent and was set to snap a four month losing streak.

US crude rose 0.13 per cent to US$75.78 a barrel and Brent was at US$82.29, down 0.19 per cent on the day.