Asian shares climb on dovish Fed, but Brexit hurdle looms

Reuters Tokyo | Updated on December 12, 2019

Japan's Nikkei stock index rose 0.18 per cent, US stock futures edged up 0.1 per cent

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 United Kingdom (UK) election and a deadline for United States (US)-China 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 per cent to the highest since November 11.

Japan's Nikkei stock index rose 0.18 per cent and US stock futures edged up 0.1 per cent. Australian shares were down 0.7 per cent, 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 per cent 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 per cent to 84.26 pence, close to its firmest level since May 2017. The pound rose 0.2 per cent 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 per cent. Activity was subdued as investors awaited more news about the US-China trade war.

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

A source also said that Trump is expected to go ahead with the tariffs which could scuttle efforts to end a 17-month long trade dispute between the world's two-largest economies.

Published on December 12, 2019

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