Asian shares rise on earnings optimism, yen slips to four-year low

Reuters TOKYO | Updated on October 20, 2021

Asia-Pacific shares outside Japan rose 0.65 per cent, led by 1.3 per cent gains in Hong Kong, while Nikkei was almost flat

Asian shares advanced on Wednesday and US long-dated bond yields edged up to a five-month high on rising optimism about the global economy and corporate earnings, while the yen slipped to a four-year low on the dollar.

European stocks are expected to trade steady to slightly lower. Euro Stoxx futures were down 0.2 per cent and Britain's FTSE futures was almost flat.

MSCI's broadest index of Asia-Pacific shares outside Japan arose 0.65 per cent, led by 1.3 per cent gains in Hong Kong, while Japan's Nikkei was almost flat and so were mainland Chinese shares, weighed down by more weak data on the property sector.

"Earlier this month, stagflation was the buzzword on Wall Street. But now excessive pessimism is receding, especially after strong US retail sales data on Friday," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

In New York, the benchmark S&P 500 index gained 0.74 per cent to finish just 0.4 per cent below its early September record close while the CBOE market volatility index fell 0.6 point after earlier hitting 15.57, its lowest level since mid-August.

"Tech shares and other high-growth shares that would have been sold on rising bond yields are rallying, which clearly shows that there is now strong optimism on upcoming earnings," Fujito said.

Earning reports will be in full swing in many countries over coming weeks. Dutch chip-making machine maker ASML Holdings and Tesla are among those that will release results later on Wednesday.

The positive mood saw US bond yields rising further, with the 10-year US Treasuries yield climbing to as high as 1.673 per cent, a level last seen in May, at one point. It last stood at 1.650 per cent.

Shorter yields dipped, however, with the two-year yield slipping to 0.395 per cent from Monday's peak of 0.448 per cent as traders took profits for now from bets that the US Federal Reserve will turn hawkish at its upcoming policy meeting in early November.

Investors expect the Fed to announce tapering of its bondbuying and money markets futures are pricing in one rate hikelater next year.

"The Fed is likely to become more hawkish, probably tweaking its language on its assessment that inflation will be transient. While the Fed will maintain tapering is not linked to a future rate hike, the market will likely try to price in rate hikes and flatten the yield curve," said Naokazu Koshimizu, senior strategist at Nomura Securities.

In the currency market, rising US yields helped to boost the US dollar to a four-year high against the yen of 114.695.

In addition to US yields, the yen was dented by expectations of a wider trade deficit in Japan due to rising oil prices and on views the Bank of Japan will stick to loose monetary policy even as other central banks move to tighten their policies.

The Chinese yuan held firm, trading at 6.3760 per dollar in offshore trade, near Tuesday's 4-1/2-month high of 6.3685.

The currency was helped by improving sentiment after China's central bank said spillover effects from China Evergrande Group's debt woes were controllable.

Risk-sensitive currencies held firm, with the euro ticking up 0.1 per cent to $1.1643.

In cryptocurrencies, bitcoin stood at $63,699, near its all-time peak of $64,895 as the first US bitcoin futures-based exchange-traded fund began trading on Tuesday.

Oil prices eased slightly in Asia but held near multi-year peaks as an energy supply crunch persisted across the globe.

US crude futures traded at $82.59 per barrel, down 0.45 per cent on the day but near Monday's peak of $83.18, its highest level since 2014. North Sea Brent was off 0.4 per cent at $84.71.

China's coal futures slumped 8 per cent in early Wednesday trade, a day after they fell 8 per cent to their downward limit in night trading, as the state planner said it was looking at ways to intervene and bring record high prices of the fuel back down to a "reasonable range".

Published on October 20, 2021

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