Asian shares climb on dovish Fed, but Brexit hurdle looms

FILE PHOTO: A man looks on in front of an electronic board showing 

stock information at a brokerage house in Nanjing

TOKYO (Reuters): Asian stocks rose on Thursday to the highest in a month after the Federal Reserve signalled rate settings were likely to remain accommodative, but the imminent UK election and a deadline for Sino-US trade talks kept investors cautious.

The Fed kept interest rates unchanged, as expected, at its policy meeting on Wednesday but indicated interest rates would remain on hold, which nudged Wall Street stocks higher.

That helped MSCI’s broadest index of Asia-Pacific shares outside Japan climb 0.8% to the highest since 11 November. Japan’s Nikkei stock index .N225 rose 0.18% and US stock futures edged up 0.1%. Australian shares were down 0.7%, however, weighed by the financial sector after a money-laundering scandal.

“The Fed’s accommodative stance does support equities, but the chance of a disruptive election outcome in Britain is very real,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“You also have the US-China trade problem. We’re likely to see subdued trading and some investors may lock in profits as the day progresses.”

The S&P 500 rose 0.29% on Wednesday after the Fed’s rate decision, which included enough dovish tones to cheer markets.

Traders are bracing for a series of make-or-break events over the next few days that have the potential to cause huge swings in financial markets for months to come.

Sterling traded near the highest in more than two years versus the euro and close to an eight-month high versus the dollar before voting begins in an election that will determine whether Britain exits the European Union in an orderly fashion.

Polls show the Conservatives’ lead shrinking ahead of an election starting later on Thursday, which could jeopardise chances of a smooth Brexit.

Exit polls for Britain’s election will begin around 2200 GMT after voting closes, then official results will begin to trickle in.

UK Prime Minister Boris Johnson’s ruling Conservative Party is running on a pledge to enact a swift split from the EU, ending more than three years of uncertainty.

Traders say a hung parliament or a victory for the main opposition Labour Party could cause huge disruptions because Labour is promising another referendum on membership of the bloc.

Against the euro, sterling rose 0.1% to 84.26 pence, close to its firmest level since May 2017. The pound GBP=D3 rose 0.2% to $1.3225, just shy of its highest since March.

The euro traded at $1.11405, close to a five-week high before a European Central Bank meeting later on Thursday where policymakers are expected to keep rates on hold.

Chinese shares slipped 0.06%. Activity was subdued as investors awaited more news about the Sino-US trade war.

US President Donald Trump is expected to meet Thursday with top advisers to discuss tariffs on nearly $160 billion of Chinese consumer goods that are scheduled to take effect on 15 December, three sources told Reuters.

Trump is expected to go ahead with the tariffs, a separate source told Reuters, which could scuttle efforts to end a 17-month long trade dispute between the world’s two-largest economies.

The dollar index against a basket of six major currencies fell 0.35% to 97.076, approaching a four-month low reached on Wednesday after Powell it would take a significant pick-up in inflation to cause the Fed to raise rates.

Treasury yields initially fell in reaction to Powell’s comments, but they rebounded slightly in Asia. 

The yield on benchmark 10-year Treasury notes rose to 1.8017%.

US crude edged up 0.24% to $58.90 a barrel. Brent crude rose 0.46% to $64.01 per barrel. A report by OPEC released on Wednesday suggested that oil markets are tighter than previously thought.

Traders are also focused on state oil company Saudi Aramco, whose shares surged the maximum permitted 10% above their IPO price on their Riyadh stock market debut on Wednesday, making it the world’s most valuable listed company.