Asian shares gain as Chinese stocks extend recovery

Reuters TOKYO | Updated on September 26, 2018

MSCI's broadest index of Asia-Pacific shares outside Japan was almost flat in early trade. File Photo   -  Reuters

Fed rate hike fully expected, another one in Dec seen likely

Asian shares pulled ahead on Wednesday, as Chinese markets extended their recovery to hit eight-week highs on receding fears about the trade war as well as hopes China's weighting in the global benchmark will be increased.

Spreadbetters expected European stocks to open flat to firmer, with Britain's FTSE starting little changed, Germany's DAX adding 0.2 per cent and France's CAC up 0.05 per cent.

Other markets were more subdued as US bond yields edged near a seven-year peak ahead of a widely expected rate hike by the Federal Reserve and as international oil prices rose to four-year highs.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.5 per cent. Shanghai shares rose 1.55 per cent.

Global index provider MSCI said it will consider quadrupling the weighting of Chinese big-caps in its global benchmarks and also proposed adding mid-caps and shares listed on Shenzhen's start-up board ChiNext.

The news further improved the mood of the market, where fears about the trade war have been offset by hopes Beijing's stimulus could help the economy weather the impact of US tariffs. Japan's Nikkei climbed more than 0.3 per cent, touching its highest since late January.

Wall Street shares were mixed overnight, as rises in energy shares on higher oil prices and gains in consumer discretionary shares following strong US consumer confidence were offset by falls in many other sectors.

US consumer confidence hit an 18-year high, adding to a string of recent data that pointed to the strong US economic momentum, despite concerns about trade wars US President Donald Trump is waging.

The Dow Jones Industrial Average fell 0.26 per cent, the S&P 500 lost 0.13 per cent while the Nasdaq Composite added 0.18 per cent.

The utility sector, sometimes seen as an alternative to bonds because of the relative steadiness of their business, was the worst performer as investors braced for a rate hike by the Federal Reserve later on Wednesday.

The benchmark 10-year Treasury yield rose to as high as 3.113 per cent, near its seven-year peak of 3.128 per cent touched on May 18. It last stood at 3.096 per cent.

Fed funds rates futures implied traders are fully pricing in a rate hike on Wednesday, and another 85 per cent chance the Fed would raise rates again in December.

“The focus will be on whether the Fed will indicate its tightening is coming to an end. The Fed may not do so today but I expect markets will soon start looking to that scenario,” said Akira Takei, bond fund manager at Asset Management One.

The Fed's past policy statements have shown that policy makers see 2.9 per cent, about 100 basis points above the current levels, as an appropriate level in the longer run. That means the Fed would hit that level with only two more rate hikes, if it will bump up rates twice more this year as widely expected.

Takei of Asset Management One noted that there are already signs that higher rates are starting to hurt the US economy, such as a rise in delinquencies of consumer loans, adding the dollar's softness could be an early sign of growing focus over an end to the US tightening cycle.

The dollar's index against a basket of major currencies stood at 94.154, near Friday's 93.808, a 2-1/2-month low. The euro traded at $1.1765, not far from three-month high of $1.18155 touched on Monday.

Many emerging market currencies, such as the Turkish lira and the South African rand, also kept some distances from lows hit last month.

Bucking the trend of greenback weakness, the yen changed hands at 112.92 to the dollar, near six-month lows of 113.18 set in mid-July.

Oil prices were supported on concerns of tight supply on US sanctions on Iran's oil exports, quickly paring early losses following data showing US crude stocks rose unexpectedly last week and renewed call from Trump on OPEC to boost crude output.

“Saudi Arabia appears to have changed its stance. It seems to be intended to maintain high prices. It could increase output to deal with decline in Iran's production but it is unlikely to step up output to bring down prices,” said Tatsufumi Okoshi, senior commodity economist at Nomura.

Benchmark Brent futures hit $82.55 per barrel, its highest since November 10, 2014, on Tuesday and last stood a shade lower at $81.80.

Brent is on course for its fifth consecutive quarterly increase, the longest such stretch for the global benchmark since early 2007, when a six-quarter run led to a record-high of $147.50 a barrel.

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Published on September 26, 2018
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