Asian stocks crawl to 5-week high

Viet Nam News - - MAR­KETS -

TOKYO — Asian stocks inched up to five­week highs yes­ter­day, af­ter Chair­man Jerome Pow­ell re­it­er­ated the Fed­eral Re­serve will be pa­tient about rais­ing in­ter­est rates and news that trade talks be­tween Wash­ing­ton and Bei­jing are mov­ing to higher lev­els.

As the Fed’s dovish stance kept a lid on the dol­lar, China’s yuan rose to its high­est lev­els in more than five months and was on course for its big­gest weekly gains since the 2005 reval­u­a­tion in on­shore trade.

Euro­pean shares are ex­pected to rise, and fi­nan­cial spread- bet­ters ex­pect Bri­tain’s FTSE, France’s CAC, Ger­many’s DAX to tick up 0.1 - 0.2 per cent.

MSCI’s broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan gained 0.29 per cent to the high­est lev­els since De­cem­ber 6, while Ja­pan’s bench­mark Nikkei ad­vanced 0.97 per cent. Shang­hai Com­pos­ite In­dex ini­tially rose 0.56 per cent.

Wall Street ex­tended its rally into a fifth straight day on Thurs­day in a whip­saw trad­ing ses­sion as in­vestors re­sponded to mixed com­ments by Pow­ell, while a warn­ing from Macy’s pum­meled re­tail stocks. At the Eco­nomic Club of Wash­ing­ton, Pow­ell re­it­er­ated the views of other pol­i­cy­mak­ers that the Fed would be pa­tient about in­ter­est rate hikes.

Ma­jor US stock in­dexes also quickly re­cov­ered from brief losses af­ter Pow­ell said that the Fed’s bal­ance sheet would be “sub­stan­tially smaller”.

“The word ‘pa­tient’ is used often when the Fed’s pol­icy di­rec­tion is still tight­en­ing but its next rate hike can wait for a con­sid­er­able time. So risk as­sets now en­joy sup­port from what we can call Pow­ell put,” said To­moaki Shishido, econ­o­mist at No­mura Se­cu­ri­ties.

The term “Pow­ell put” refers to the idea that Pow­ell’s pol­icy will pro­tect in­vestors from falls in share prices, much like put op­tions, or rights to sell as­sets at a pre­de­ter­mined price.

In­vestors who worry about a fall in eq­uity prices often buy their put op­tions for hedge.

“Sim­i­larly, Trump also soft­ened his stance on China af­ter sharp falls in stock prices. He has of­fered an olive branch to China and there’s no rea­son China would not want to ac­cept it,” he said.

US and Chi­nese of­fi­cials are work­ing on ar­range­ments for higher-level trade talks af­ter mid-level of­fi­cials this week dis­cussed US de­mands that would re­quire struc­tural change in China to ad­dress is­sues such as IP theft, forced tech­nol­ogy trans­fers and other non-tar­iff bar­ri­ers.

US Trea­sury Sec­re­tary Steven Mnuchin said Chi­nese Vice Premier Liu He will “most likely” visit Wash­ing­ton later in Jan­uary for trade talks.

“For mar­kets the up­shot is that the out­look for 2019 is look­ing bet­ter as ten­sions de-es­ca­late, cre­at­ing the po­ten­tial for a rerat­ing of risk as­sets as the tail risk of a neart­erm trade war is par­tially priced out,” said Jeremy Law­son, chief econ­o­mist at Aberdeen Stan­dard In­vest­ments in Ed­in­burgh.

“This is es­pe­cially the case in Asia,” he added.

Still, fun­da­men­tal ten­sions be­tween the US and China “are un­likely to go away and there is a high like­li­hood that any agree­ment to sus­pend tar­iffs even­tu­ally breaks down when it be­comes clear that Trump’s ob­jec­tives can­not re­ally be met”.

Some in­vestors are also in­creas­ingly wary of lin­ger­ing dis­putes in Wash­ing­ton over a wall Trump wants on the US-Mex­ico bor­der, which has led to a weeks-long par­tial gov­ern­ment shut­down.

Flanked by bor­der agents who are go­ing with­out pay­checks dur­ing the shut­down, Trump again threat­ened on Thurs­day to de­clare a na­tional emer­gency to by­pass Congress to fund a wall.

In the for­eign ex­change mar­kets, the dol­lar was broadly soft af­ter a small re­bound from three-month lows the pre­vi­ous day.

The dol­lar in­dex, mea­sur­ing it against ma­jor peers, dipped 0.1 per cent to 95.38.

The euro firmed 0.2 per cent to US$1.1523, while the dol­lar dipped 0.1 per cent to 108.28 yen.

The yuan, both on­shore and off­shore, climbed to the high­est lev­els since late July, aided by a weaker dol­lar and ris­ing hopes of progress in the US-China talks.

In on­shore trade, the Chi­nese cur­rency has risen 1.8 per cent this week, the big­gest gain since July 2005 when Bei­jing aban­doned the yuan’s peg to the dol­lar.

US Trea­sury debt prices erased early gains af­ter a soft 30-year bond auc­tion and in re­ac­tion to Pow­ell’s com­ments on the Fed “sub­stan­tially” re­duc­ing the size of its bal­ance sheet.

The 10-year US Trea­suries yield last stood at 2.728 per cent. — REUTERS

An em­ployee counts 100-yuan notes at a bank in Nan­tong in China’seastern Jiangsu prov­ince. — Photo

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