LONDON/TOKYO: Asian shares edged up on Monday on optimism for global growth, while the dollar was on the defensive as a subdued US inflation outlook capped US bond yields and raised questions about the Federal Reserve’s plans to tighten policy.
Shares also rose in Europe on Monday, with Italian banks gaining after a deal to wind up two failed regional lenders, while the dollar and US bond yields held close to recent lows as subdued inflation raised questions over the outlook for monetary policy.
The-pan-European STOXX 600 share index rose 0.6 per cent, led higher by banks, after the agreement under which Italy’s largest retail bank, Intesa Sanpaolo will take on the remaining good assets of collapsed Popolare di Vicenza and Veneto Banca.
Intesa shares rose 3.2 per cent. The Italian government will pay it 5.2 billion euros and give it guarantees of up to a further 12 billion euros.
Investors have long viewed the Italian banking sector as a major cause of fragility within the euro zone.
In index of Italian banks was up 2 per cent and the broader Milan market rose 1.1 per cent.
Italian 10-year government bond yields rose 0.2 basis point to 1.91 per cent, widening the gap over benchmark German equivalents by 2 bps to 165.
“There is the danger that other banks need state support, but I think there’s more clarity now that there is a solution for the banking sector,” said ING fixed income strategist Martin van Vliet.
MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.6 per cent as tech led gains.
Trading was slow with many markets in the region closed for holidays to celebrate the end of Ramadhan.
Japan’s Nikkei rose 0.1 per cent.
Mainland Chinese shares rallied, with the CSI300 index rising 1.2 per cent to hit its highest level in almost 18 months, after MSCI said the index provider could raise its weighting of China’s mainland-listed ‘A’ shares.
The euro rose 0.1 per cent to $1.1204, with the dollar steady as the gap between short- and longer-dated US government bond yields held close to recent 10-year lows hit on signs inflation is likely to remain subdued.
Investors greeted the election last year of US Donald Trump as likely to lift inflation, and with it US interest rates but price rises have remained stubbornly subdued.
The Federal Reserve raised rates this month for the second time this year and has said it expects to raise again later this year. Futures imply only a 50 per cent chance of a further hike by December.
Fed Chair Janet Yellen speaks in London on Tuesday and investors will be on alert for any clues to the rate outlook, after mixed views from other Fed officials in recent days.
“The market continues to call the Fed’s bluff on its intentions to change rates. I don’t think anything (Fed chair) Janet Yellen can say this week will change that,” said Stephen Gallo, head of European FX strategy with Bank of Montreal.
European Central Bank President Mario Draghi speaks on Monday, ahead of a meeting of central bankers in Portugal later in the week.
The yen dipped 0.2 per cent to 111.43 per dollar while sterling, on the up since more Bank of England policymakers have either called or said they are likely to call for higher interest rates, rose 0.1 per cent to $1.2741.
A major cause of lower inflation globally has been a fall in oil prices in recent weeks on signs an agreement by producers in the Organization of the Petroleum Exporting Countries is failing to curb a global glut of crude.
Dollar weakness also lifted copper. The industrial metal rose 0.4 per cent to $5,823 a tonne, just shy of its highest since early April. Gold, however, fell sharply, with traders citing anxiety ahead of US economic data duiker later this week. — Reuters