Asia shares win reprieve as dollar rally, bond rout pause

Reuters: A pause in both the sell-off in global bonds and sharp rise in the dollar following Donald Trump’s election victory, together with Wall Street’s record high overnight helped Asian shares steady on Wednesday.

US President-elect Trump’s plans to cut taxes and boost infrastructure spending would boost demand while his proposals to deport illegal immigrants and impose tariffs on cheap imports, if implemented, are seen likely to drive inflation higher.

That prospect has given rise to expectations that US interest rates will rise faster than earlier anticipated, making the dollar stronger, but investors are still trying to assess what opportunities a Trump presidency will bring.

“The markets are having a bit of a pause at the moment. But people still want to do more of this trade,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo.

“If you look at the US markets, investors are looking at coming infrastructure spending and so on and they are rotating to stocks from bonds.”

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, bouncing back from a four-month low touched earlier this week.

European shares are expected to rise as well, with spread-betters expecting Britain’s FTSE, Germany’s DAX and France’s CAC opening up about one%.

The dollar’s strength has fanned fears investors could shift funds to the United States from emerging markets.

Emerging market stocks, which had fallen 7% over the four sessions until Monday, also extended gains for a second day on Wednesday.

Japan’s Nikkei rose 1.1% to nine-month high on Wednesday, thanks to the dollar’s strength against the yen.

The dollar was trading at 109.08 yen in late Asian trade, having slipped slightly off high of 109.34 yen struck on Tuesday.

On Wall Street, the Dow Jones industrial average rose 0.29% to a record high while the S&P 500 gained 0.75%.

Since Trump’s unexpected victory last week, US shares have rallied while US bond prices tumbled, pushing up their yields sharply.

The yield on 10-year US Treasuries slipped to 2.207% from Monday’s 11-month high of 2.302%, although that is sharply above its levels around 1.86% before the election.

US retail sales rose more than expected in October, pointing to sustained economic strength that could allow the Federal Reserve to raise interest rates next month.

US interest rate futures <0#FF:> are pricing in an 85% chance of a rate hike, compared to 75% before the election.

The two-year US notes yield fell to 0.989% on Wednesday, having hit a 10-month high of 1.029% on Tuesday.

Sharp gains in US bond yields have drawn investors to the dollar, and its index against a basket of six major currencies hit its highest level in almost a year on Tuesday.

It slipped slightly in Asia on Wednesday to 99.973, but was still just 0.5% away from reaching its highest level in more than 13-1/2 years.

The euro traded at $ 1.0748, a tad above Monday’s $ 1.0709, its lowest level in almost a year.

The Chinese yuan also weakened to 6.8703 to the yuan, its weakest level since December 2008. Gold traded at $ 1,231.5 per ounce, not far from a 5 1/2-month low of $ 1,211.8 seen on Monday.

In contrast, oil prices extended gains, shrugging off an industry report that showed an unexpected build in US crude stocks, and adding to gains of nearly 6% from the previous session.

Oil prices had surged on Tuesday as members of the Organization of the Petroleum Exporting Countries (OPEC) were set to renew efforts on concrete steps to implement a deal on cutting output in the face of a persistent global glut.

Brent futures, the global benchmark, rose 0.8% to $ 47.32, hitting their highest levels in about two weeks.