Asian shares edge up but caution prevails ahead of Fed
TOKYO – Asian shares rose on Monday, taking their cue from gains on Wall Street after strong US job data, though the mood was cautious as oil prices plunged to 3 1/2-month lows on fresh worries of oversupply.
A confluence of major events this week including an expected interest rate hike by the US Federal Reserve, a potentially divisive election in the Netherlands and a Group of 20 (G20) finance ministers’ meeting kept many investors on edge.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6 percent, led by gains in tech-heavy South Korean shares and Taiwanese shares.
Japan’s Nikkei edged 0.2 percent higher, with exporters’ shares buoyed by a weaker yen. Global stocks rose on Friday, with the MSCI’s index of 46 markets gaining 0.5 percent, snapping six straight days of losses after the robust US jobs report.
Strong US jobs data all but sealed the chance of a rate increase by the Federal Reserve on Wednesday. “The markets are focusing on when the Fed will raise rates next time or the pace of its rate hike, so the tone of Fed Chair Janet Yellen will be closely watched,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
US interest rate futures <0#FF:> are pricing in about a 50 percent chance of another rate hike in June. By the end of 2017, a total of nearly three hikes were fully priced in, including the likely move in March.
In Reuters poll of primary dealers, twelve of the 23 dealers saw a rate increase to 1.00-1.25 percent by the June 13-14 meeting, while 10 expected such a move by the Fed’s September meeting.
The 10-year US Treasuries yield slipped a tad on Friday partly as markets had already expected strong payroll figures.
Still, it last stood at 2.584 percent, not far from its two-year high of 2.641 percent touched on Dec 15.
US junk bonds have also faltered, with high-yield bond ETF posting its biggest weekly loss in more than a year.
Global bond prices also came under pressure following a report that some European Central Bank policymakers had discussed the possibility of rate hikes before the end of its quantitative easing programme.
The 10-year German Bund yield rose to 0.496 percent on Friday, near its one-year high of 0.498 percent hit in January. A break of those previous peaks in major bond yields could spark a fresh sell-off in global bond markets.
The talk of ECB rate hike, even though it is still seen as a remote possibility, helped to lift the euro. The single currency traded at $1.0690, after hitting a one-month high of $1.06995 on Friday.
On the other hand, worries about the European project could resurface if Wednesday’s parliamentary election in the Netherlands will see the far-right gain more ground than expected.
Polls suggest the far-right ticket will double its vote and its results could investors perceptions’ on upcoming elections in France and Germany later this year.
The dollar slipped to 114.85 yen from Friday’s seven-week high of 115.51 yen after US Commerce Secretary Wilbur Ross said on Friday that Japan will be on high on the US priority list for trade agreements.
Traders suspect Washington, keen to reduce its trade deficit, may put pressure on Japan not to cheapen the yen in upcoming bilateral economic talks. “The G20 will be an important event for the dollar,” said Yoshinori Shigemi, Tokyo-based global market strategist at JPMorgan Asset Management.
“I had assumed, until last week, that the dollar would gain on a rise in US rates. But if the G20 say something like they want to reduce trade imbalances, that could give rise to the speculation that they may not want a strong dollar,” said Yoshinori Shigemi, Tokyo-based global market strategist at JPMorgan Asset Management.
G20 finance ministers and central bankers will meet in Germany on March 17-18, their first meeting attended by representatives of the administration of US President Donald Trump. A draft communique circulated last week showed they may no longer explicitly reject protectionism or competitive currency devaluations.
Oil skidded to 3 1/2-month lows after posting biggest three-day loss in a year by Friday on worries that OPEC-led production cuts have not yet reduced a global glut of crude as US drillers kept adding rigs. US crude futures dropped 0.8 percent to $48.11 per barrel, having shed more than 11 percent so far this month. -Reuters