Asian Stocks Advance With European Futures as Dollar Retreats

EghtesadOnline: Asian stocks rallied with European and U.S. equity index futures, while the dollar weakened versus most peers amid speculation Federal Reserve policy will remain accommodative. Fading prospects for interest-rate cuts in Australia and New Zealand boosted their currencies.

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18 October 2016

The MSCI Asia Pacific Index rose the most in three weeks, led by raw-materials producers. The Bloomberg Dollar Spot Index extended Monday’s retreat from a seven-month high after reports showed New York manufacturing unexpectedly shrank and U.S. factory output barely grew. The Kiwi led gains among G-10 currencies following inflation data, while the Aussie climbed for a fifth day as the Reserve Bank of Australia highlighted the risks of monetary easing. Oil rose above $50 a barrel, reports Bloomberg.

“On a longer-term basis, we do think that the Federal Reserve is likely to be behind the curve where hiking rates is concerned,” Kelvin Tay, regional chief investment officer at UBS Group AG’s wealth management business in Singapore, said in a Bloomberg Television interview. That being the case, the dollar’s strength is more or less likely to be at its peak, he said.

U.S. economic reports and comments from Fed officials are being closely scrutinized for anything that may influence the U.S. interest-rate outlook at a time when futures prices indicate a 66 percent chance that borrowing costs will be raised before the year is out. The Bloomberg U.S. ECO surprise index -- which measures whether data have exceeded or fallen short of analysts’ estimates -- fell below zero for the first time in two weeks ahead of American inflation figures on Tuesday.

Stocks

The MSCI Asia Pacific Index added 0.8 percent as of 7:13 a.m. London time, with a gauge of raw-materials producers rallying 1.3 percent.

Hong Kong’s Hang Seng Index advanced 1.5 percent and the Shanghai Composite Index gained 1.1 percent. China may release September lending figures before Wednesday’s report on gross domestic product.

ASM Pacific Technology Ltd., the chip-packaging equipment maker majority owned by ASM International N.V, jumped 10 percent in Hong Kong after UBS AG upgraded its recommendation on the stock. YGM Trading Ltd. surged as much as 91 percent, its biggest intra-day gain on record, after the Hong Kong-based garment maker reached a preliminary agreement to sell its Aquascutum brand business for $120 million.

Futures on the Euro Stoxx 50 Index rallied 0.6 percent and S&P 500 Index contracts gained 0.4 percent. Netflix Inc. surged 20 percent after regular U.S. trading hours, as the online television service said it added more subscribers than estimated in the third quarter. Goldman Sachs Group Inc. is among American companies posting results on Tuesday.

Currencies

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, declined 0.2 percent. The pound strengthened 0.5 percent versus the greenback before the U.K. releases September inflation figures on Tuesday.

“The dollar has struggled to gain upside momentum today because of further evidence that the Fed’s tightening cycle will be very gradual,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney.

The Kiwi climbed 0.8 percent after New Zealand said its consumer prices rose 0.2 percent from a year earlier in the last quarter, more than the 0.1 percent increase forecast in a Bloomberg survey. Some economists said the data may weaken the case for interest-rate reductions beyond November.

The Aussie strengthened 0.6 percent and touched a two-week high. Reserve Bank of Australia Governor Philip Lowe said Tuesday that trying to revive inflation too quickly could threaten financial stability by inciting a new round of borrowing by heavily indebted consumers. He spoke before the release of minutes from the RBA’s last policy meeting, which showed economic expansion was forecast to continue at a moderate pace.

Bonds

The yield on U.S. Treasuries due in a decade rose one basis point to 1.78 percent, contributing to a 19 basis point jump for the month. Longer-dated notes have slumped amid concern inflation is gathering pace and Tuesday’s data are forecast to show American consumer prices increased 1.5 percent in September from a year earlier, the fastest pace in almost two years.

“Everybody is talking about the inflation rate,” said Kim Youngsung, head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which has $13.2 billion in assets. “We are expecting an interest-rate hike in December. Worldwide, everybody is worried about interest-rate hikes next year.”

This month’s selloff in Treasuries has had knock-on effects on bond markets across much of the world. Taiwan’s 10-year bond yield increased by eight basis points to 0.9 percent on Tuesday, the biggest gain in three years.

Similar-maturity notes in New Zealand also dropped, pushing their yield up by seven basis points to 2.63 percent. Futures traders were assigning a 79 percent probability of a an interest-rate cut at the central bank’s Nov. 10 meeting compared with 84 percent on Monday. Australia’s yield increased by three basis points to 2.34 percent as the chance of an RBA rate reduction by the end of 2017 dropped to 27 percent from 33 percent.

Ezra Holdings Ltd. became the latest oil services company in Singapore to seek leniency from its creditors, requesting waivers from bondholders on some of its debt covenants. Its Singapore dollar bonds due in 2018 have dropped to about 41 cents from 89 cents three months ago, according to prices compiled by Bloomberg.

Commodities

Crude oil was up 0.6 percent at $50.25 a barrel in New York, after slipping 0.8 percent in the last session. The price has fluctuated near $50 so far in October amid uncertainty about whether the Organization of Petroleum Exporting Countries will implement a Sept. 28 agreement to reduce supply. An OPEC committee will meet later this month to try and resolve differences over how much individual members should pump.

Gold rose 0.3 percent, while copper, aluminum and lead climbed by the most in a week.

“The Fed is likely to hold fire on interest rates until December at the earliest,”Jordan Eliseo, chief economist at Australian Bullion Co. said by e-mail. “Data is still mixed, and there seems little justification to push through a hike.”