Asia shares hit 2008 highs, US dollar in decline on Fed inflation view
inflation that promised to keep US interest rates low for longer.SYDNEY — Stocks, bonds and commodities were all on a roll in Asia today as bulls scented a softening in the Federal Reserve’s confidence on
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.5 per cent to heights not seen since January 2008. It has gained nearly 5 per cent so far this month.
South Korea added 0.6 per cent and Australia 0.2 per cent, while Japan’s Nikkei was kept flat by a firmer yen.
The latest rush for risk came after the Fed left US rates unmoved as expected today but the market seized on tweaks in its wording on inflation.
It noted that both overall and core inflation had declined and removed the qualifier “recently,” perhaps suggesting concerns the slowdown might not be temporary.
The Fed also said it expected to start winding down its massive holdings of bonds “relatively soon.” cementing expectations of a September start.
While that would be an effective tightening in financial conditions it might also lessen the need for actual hikes in rates, which matter more for currency valuations.
“In the short-term we are still in a risk-favorable loop, whereby subdued goods and services inflation supports a well behaved bond market and asset inflation. It’s just another day in paradise.”
A Reuters poll showed most primary dealers, the banks authorized to trade directly with the Fed, still see the Fed’s next rate rise in December. But Fed funds rate futures are pricing in less than 50 per cent chance of a hike by then, compared to more than 50 per cent before the Fed’s meeting.
US dollar breaks lower
Yields on US 10-year debt duly fell five basis points and were last at 2.28 per cent.
The US dollar followed, falling to a 13-month trough against a basket of currencies at 93.370. It was last down around 0.2 per cent at 93.444.
The euro, which had been bumping up against a 23-month top for most of the week, finally broke through to reach US$1.1742, its highest since January, 2015.
The next major chart target was the 200-week average at US$1.1807 — a measure the euro has not traded above since August 2014.
Indeed, the dollar was fast approaching the 200-week barrier on both the Canadian and Australian dollars and breaks would be technically bearish.
The US dollar even fall back on the yen to 111.04 though the damage was limited by expectations the Bank of Japan would keep its super-easy policies in place longer than most other global central banks.
The prospect of US policy staying stimulative saw Wall Street’s fear gauge touch a record low. The Dow ended yesterday up 0.45 per cent, while the S&P 500 added 0.03 per cent and the Nasdaq 0.16 per cent.
Telecoms was the best performer, propelled by a 5.0 per cent gain in AT&T after its results. Boeing soared 9.9 per cent after beating estimates and Amazon’s market worth topped US$500 billion (RM2.14 trillion) for the first time.
The declining US dollar boosted commodities priced in the currency. Spot gold hit a six-week high and was last trading at US$1,262.45, while copper reached territory not trod since May 2015.
Oil prices neared eight-week highs as a surprisingly sharp drop in US inventories encouraged speculation a global crude glut would recede.
A bout of profit-taking in early Asia tosday saw Brent crude futures ease 11 cents to US$50.86 a barrel, while US crude dipped nine cents to US$48.66. — Reuters
Source: The Malay Mail Online