Asia stocks hit four-week high after strong US jobs data

Reuters SYDNEY | Updated on January 17, 2018 Published on July 11, 2016

Currencies in tight range, no recovery for sterling

Asian share markets enjoyed a relief rally on Monday as upbeat US jobs data lessened immediate concerns about the health of the world's largest economy, while the long-run fallout from Brexit kept sovereign yields near record lows.

MSCI's broadest index of Asia-Pacific shares outside Japan jumped 1.9 per cent to a one-month top. Australia added 1.8 per cent and Shanghai 1 per cent.

Japan's Nikkei climbed 3.5 per cent, its biggest daily gain in three months, following a clear win by the government in upper house elections.

Prime Minister Shinzo Abe's ruling coalition won a landslide victory giving it the power to potentially revise the nation's post-war pacifist constitution for the first time.

“Abe's victory boosted confidence in investor sentiment, and winning a two-thirds majority sends foreign investors a message that Abe's policies will see a progress,” said Hikaru Sato, a senior technical analyst at Daiwa Securities.

The Asian rebound came after news the US economy added 287,000 jobs last month, well above median forecasts and recovering from a very weak May report.

In the end, investors concluded the data was not strong enough to revive the prospect of a rate hike from the Federal Reserve for the next few months, benefiting bonds and stocks.

The Dow gained 1.4 per cent, while the S&P 500 firmed 1.53 per cent and the Nasdaq 1.64 per cent. The rise set the seal on an eight-session run that has seen US equities add $1.4 trillion to market capitalisation.

Fed officials are scheduled to speak several times this week, offering plenty of opportunities for the market to glean clues about policy.

One major event this week will be a Bank of England meeting on Thursday when it might well cut its 0.5 per cent rate to offset the economic drag from the vote to leave the European Union.

Governor Mark Carney has already opened the door to easing, including the expansion of its 375 billion-pound bond-buying programme.


The only question was timing, with analysts in a Reuters poll divided on whether a cut would come this week or in August.

Various reports out on Monday argued for urgent action, with consumer spending falling last month, the business outlook darkening by the most in four years and economic activity in London slowing sharply.

“The outcome of the UK referendum has dealt a significant shock to the outlook for the global economy,” warned Christian Keller, an economist at Barclays.

“It introduced a higher uncertainty about Europe's future, and raised questions about globalisation more generally,” he added. “Confidence and financial channels could potentially propagate the effects to the US, China and beyond.”

That was one factor behind the relentless demand for sovereign debt that has driven down yields, which move inversely to prices, and kept the pound at its weakest since 1985.

Benchmark US 10-year paper was paying 1.37 per cent, with Japan at -0.28 per cent and Germany -0.20 per cent.

Sterling was stuck at $1.2950 on Monday, having failed utterly to rebound from the 13 per cent loss suffered in the immediate wake of Brexit.

The Japanese yen eased a little to 100.71 per dollar, while the euro stayed on the defensive at $1.1049 having touched a low of $1.1003 on Friday.

In commodity markets, spot gold was a shade higher around $1,368.40 per ounce.

Crude prices edged down to near two-month lows on seasonally weak consumption, despite comments from Saudi Arabia's oil minister that the oil market was becoming more balanced.

Brent crude was down 39 cents at $46.37 a barrel, while NYMEX crude fell 45 cents to $44.96.

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Published on July 11, 2016
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