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Asia: Stocks climb on Fed outlook as oil slides, Aussie weakens

Monday, April 4, 2016 - 14:18

[WELLINGTON] Asian stocks outside Japan rose as investors maintained bets the Federal Reserve will proceed cautiously on raising interest rates, even as data show the world's biggest economy is strengthening.

Oil slid after Saudi Arabia backed away from a commitment to freeze crude output.

The Asian equity benchmark advanced after strong US manufacturing and jobs reports had little impact on speculation that the Fed will hold off from tightening policy until near the end of the year.

Japanese shares slipped as the yen touched a two-week high against the greenback. Crude extended declines after Saudi Arabia's deputy crown prince said the kingdom will only arrest production if Iran does.

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Australia's dollar slid after retail sales missed estimates. Copper fellas bonds rose.

Odds of the Fed hiking rates by November held at about 50-50 as data showed US manufacturing expanded for the first time in seven months and more workers than expected were added to nonfarm payrolls last month.

Risk assets rallied in March amid a pullback in the dollar after the Fed reduced its outlook for rate rises this year to two from four. Chair Janet Yellen reaffirmed the go-slow approach in a speech last week.

"Yellen is exceptionally dovish," Mark Matthews, head of Asia research and a managing director at Bank Julius Baer & Co in Singapore, said on Bloomberg Radio.

"She's probably going to let the recovery run hot for a while. This is all great for stocks."

Markets in mainland China, Hong Kong and Taiwan are shut for holidays. A manufacturing index for India is due.

The MSCI Asia Pacific Index added 0.3 per cent as of 2.27 pm Tokyo time, after sliding 2.3 per cent on Friday.

Utilities and health-care stocks led Australia's S&P/ASX 200 Index to a 0.3 per cent advance. New Zealand shares gained 0.5 per cent. The Topix index lost 0.4 per cent in Tokyo.

Futures on the Standard & Poor's 500 Index were little changed following a 0.6 per cent increase in the American benchmark at the end of last week.

Payrolls in the US grew by 215,000 workers last month, more than the 205,000 predicted by economists, and February's increase was revised to 245,000.

The unemployment rate rose to 5 per cent from 4.9 per cent as more people sought work, according to the government data.

"Friday's US labor market report was something of a middling result for markets," Philip Borkin, a senior economist in Auckland at ANZ Bank New Zealand Ltd., wrote in a client note.

"On the one hand it was not really strong enough to suggest inflation pressures are going to run away on the Fed, but on the other, it certainly still showed, together with a rebound in the ISM, that the economy is still performing well overall."

West Texas Intermediate crude slumped 1.2 per cent to US$36.36 a barrel Monday, extending Friday's 4 per cent tumble. Brent was down 1 per cent to US$38.28 after losing 4.1 per cent.

Middle Eastern equities slid Sunday, with shares in Saudi Arabia dropping to a five-week low, after Mohammed bin Salman, who has emerged as a leading political force, challenged the country's main regional rival and other major oil producers to take an active role in stabilizing the market.

Iran has already said it plans to boost production after sanctions were lifted following a deal to curb the country's nuclear program.

"If all countries agree to freeze production, we're ready," Mr Salman said in an interview with Bloomberg. "If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door."

Copper dropped 0.7 per cent on the London Metal Exchange, with zinc down 0.6 per cent and tin losing 0.9 per cent.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed after falling for five days, and traded close to its weakest level since June.

The probability of an increase in US rates by December has slipped to 62 per cent, from 73 per cent a week ago, according to Fed funds futures compiled by Bloomberg.

Ms Yellen has said the central bank will "proceed cautiously" when it comes to monetary policy given the heightened risks to the global economy.

"A string of stronger data than this is needed for the dollar to regain its pro-cyclical advantage," said Peter Frank, global head of Group of 10 and Asian currency strategy at Banco Bilbao Vizcaya Argentinaria SA in London.

"Much will depend upon Fed's perceived reaction function, which seems to be as much a reaction function tied to external factors as it is tied to the US domestic economic outlook."

The Aussie weakened 0.5 per cent to 76.36 US cents, after climbing 2.3 per cent last week. Retail sales were little changed in February from a month earlier, a report showed, missing economists' forecast for a 0.4 per cent gain. The nation's central bank reviews monetary policy on Tuesday, when it's expected to hold borrowing costs at a record low.

The won led gains in Asia, strengthening for the fifth time in six days. The yen added 0.3 per cent to 111.34 per dollar after jumping 0.8 per cent on Friday amid the greenback's retreat.

Treasuries climbed, after ending Friday little changed, with 10-year yields slipping two basis points, or 0.02 per centage point, to 1.75 per cent.

In Asia, Australian government notes led gains, with yields on debt due in a decade down seven basis points to 2.46 per cent. Rates on similar-maturity Japanese bonds fell one basis point to minus 0.08 per cent.

BLOOMBERG

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