Asian stock markets at 21-month highs, dollar soft

TOKYO: Asian shares hit 21-month highs on Tuesday while the dollar and US bond yields were on the backfoot on the prospect of a less hawkish than previously expected Federal Reserve policy trajectory.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 per cent in its eighth consecutive day of gains with tech-heavy Seoul and Taipei share hitting two-year highs while Hong Kong’s Hang Seng scaled 1-1/2-year highs.
European shares are expected to open slightly higher, with spread-betters seeing a rise of up to 0.1 per cent in Britain’s FTSE, Germany’s DAX and France’s CAC.
Japan’s Nikkei dropped 0.3 per cent, weighed by financial stocks, which were hurt by lower US yields and exporter stocks, which fell on the yen’s gains against the dollar.
While Asian shares have been supported by signs of strong global economic growth, concerns about protectionism cast a shadow after financial leaders of the world’s biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States.
Wall Street shares drifted lower on Monday as investors worried that President Donald Trump’s plan to cut taxes and boost the economy could take longer than earlier expected.
“Any fiscal spending by the Trump administration will not come until August at earliest and probably much later. So any economic benefit of that will show up only next year,” said a senior trader at a European bank.
Expectations that the Federal Reserve will have to step up rate hikes to counter inflationary pressure from Trump’s stimulus are also waning after the Fed dropped no hints of an acceleration in credit tightening last week.
Chicago Federal Reserve President Charles Evans, in one of the first official comments after the Fed raised rates as expected last week, reiterated that message on Monday.
He said that two more interest rate hikes this year were likely, disappointing investors who had anticipated rates to be increased more quickly. Evans’s comments helped to bring down the 10-year US Treasuries yield to 2.461 per cent, its lowest level in two weeks. It last stood at 2.479 per cent.
Lower yields undermined the greenback’s allure, softening the dollar to three-week lows near 112.26 yen in early Asian trade.
The euro ticked up to $1.0758, near Friday’s six-week high of $1.07825, maintaining its gains made last week after a election defeat for Dutch far-right leader Geert Wilders, which eased broader fears of a populist drift in European politics.
In France, centrist Emmanuel Macron solidified his status as front-runner in the presidential election in a televised debate on Monday.
“At the moment, worries about the election have subsided a bit after the Dutch elections. But I expect the market to become more nervous near the election, given last year’s experiences (with Brexit and the US elections),” said Kazushige Kaida, head of foreign exchange at State Street.
The dollar’s index against a basket of six major currencies stood at 100.24, after hitting a six-week low of 100.02 on Monday. The specter of slower US rate hikes has been helping high-yielding currencies.
The Australian dollar traded at $0.7706, after hitting a 4-1/2-month high of $0.7748 on Monday. It has risen 2.0 per cent since the Fed’s policy meeting last week.
The South African rand has gained 4.0 per cent since then to a near 1-1/2-year high while the Brazilian real rose 3.2 per cent . — Reuters