Asian Stocks Surge to Two-Month Highs on Stimulus, Dollar Softness
SINGAPORE, Nov 15 (Reuters) – Asian stocks surged to two-month highs on Wednesday in anticipation of stimulus in China and an end to rate hikes in the United States, while the dollar nursed steep losses suffered in the wake of a benign U.S. inflation report.
SINGAPORE, Nov 15 (Reuters) – Asian stocks surged to two-month highs on Wednesday in anticipation of stimulus in China and an end to rate hikes in the United States, while the dollar nursed steep losses suffered in the wake of a benign U.S. inflation report.
After U.S. headline consumer prices showed no change in October against expectations of a 0.1% rise, investors responded by shifting to price in a rate cut as early as May, with a 30% chance it could come even sooner, in March.
Naka Matsuzawa, Nomura’s chief macro strategist, noted that the CPI number has prompted the last person to cover their shorts, yet a complicated process lies ahead as stock market exuberance eventually collides with bond market expectations of an economic slowdown and rate cuts.
The Japan Nikkei average and stock quotations outside a brokerage in Tokyo, Japan – Reuters, Androniki Christodoulou/File Photo
The overnight Nasdaq markets jumped 2.4% and the small-cap Russell 2000 index leapt 5%, marking the dollar sliding 1.6% on the euro and 2% on the Australian and New Zealand dollars. Pacific shares and bond markets from Australia to South Korea also experienced their strongest gains since March.
The optimism in Asian markets was further bolstered by strong industrial output and retail sales data in China and reports of the government planning to provide $137 billion worth of low-cost financing to boost the housing market.
China’s retail sales rose 7.6% in October, and Beijing has been turning increasingly proactive to support the recovery, with ongoing uncertainties in the property sector. Additionally, the mainland CSI300 index rose 0.6%, while the Hang Seng index of mainland property developers rose 4.3%.
A weaker dollar helped boost the yuan to a three-month high of 7.2356 per greenback, with the euro hovering at $1.0877 and the sterling holding sharp gains at $1.2491.
In Japan, the economy contracted in July-September, leaving the yen unloved as the slowdown puts the brakes on rate hike expectations there.
“The bond market is probably more vulnerable than equities,” said Naka Matsuzawa, Nomura’s chief macro strategist. Two-year Japanese government bonds saw a sharp rally, with a yield falling more than 3 bps to 0.055%.
The rally in Asian markets was also supported by data on Australian wages showing high inflation feeding into pay deals, while annual growth of 4% remained below many other developed nations.
In addition to the bullish sentiments in the Asian markets, Brent crude futures rose by 0.4% or 31 cents a barrel to $82.78.
As financial markets await British inflation data, U.S. retail sales, and an expected morning meeting between U.S. President Joe Biden and his Chinese counterpart Xi Jinping in San Francisco, the optimism in Asian markets remains high.
Reporting by Tom Westbrook; Editing by Edmund Klamann