Strong dollar lifts Japan shares, crimps commodities

EghtesadOnline: The U.S. dollar crept nearer to 14-year peaks on Wednesday as an abundance of upbeat global economic data boosted Wall Street and signs of quickening inflation dented fixed-income debt.

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04 January 2017

The strength of the U.S. currency pressured commodity prices and helped drag oil off an 18-month top, but gave Japan's exporter-heavy stock market a fillip.

The Nikkei climbed 2.1 percent, recovering from two sessions of losses as domestic data showed factory activity expanded at the fastest pace in a year, Reuters reported.

Markets elsewhere in Asia were more hesitant having already rallied on Tuesday. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1 percent and trying to string together a seventh straight session of gains.

The brightening mood followed a round of upbeat factory surveys from China, the euro zone and United States. Analysts at Barclays said their measure of global manufacturing confidence hit its highest since December 2013.

U.S. factory activity sped to a two-year high amid a surge in new orders, while manufacturing in the euro zone grew at its fastest pace in five years.

Notably, the U.S. ISM showed a sharp pick up in raw material prices which stoked speculation the Trump Administration's proposed stimulus measures will generate more inflation.

Wall Street's rally was further aided by gains in Verizon Communications and technology companies Alphabet and Facebook. The Dow ended Tuesday up 0.6 percent, while the S&P 500 gained 0.85 percent and the Nasdaq 0.85 percent.

Ford Motor jumped 3.79 percent on news it would cancel a planned $1.6-billion factory in Mexico and invest $700 million at a Michigan factory, after Trump had harshly criticized the Mexico investment plan.

The same news slugged the Mexican peso, leaving it at its lowest-ever close against the U.S. dollar.

DOLLAR IN DEMAND

The dollar's strength was broad-based and it hit a 14-year peak on a basket of currencies at 103.82 before profit-taking pulled it back a touch to 103.40.

After an early pause on the yen, the U.S. currency edged up to 118.08 and back toward major chart resistance around 118.60/66. A floundering euro was pinned at $1.0395, having dived as deep as $1.0342 overnight.

The euro's decline came despite a jump in domestic bond yields after data showed German inflation hit its highest level in more than three years in December.

While much of the increase was due to transitory factors such as energy, long-term inflation expectations still rose to their highest since December 2015.

Overall euro zone numbers due later Wednesday are expected to show inflation picked up to an annual 1 percent, from 0.6 percent previously.

German 10-year bond yields leaped 10 basis points to a two-week high of 0.29 percent.

In commodity markets, the dollar's ascent caused losses for everything from copper to iron ore, though oil prices steadied after losing more than 2 percent on Tuesday.

U.S. crude clawed back 31 cents to stand at $52.64 a barrel, while Brent futures added 32 cents to $55.79.