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Asia: Stocks extend rally with won, ringgit as Fed's D-Day dawns

Wednesday, December 14, 2016 - 09:03

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[WELLINGTON] Stocks continued to climb in Asia, rising with emerging-market currencies amid a market convinced the Federal Reserve is poised to raise interest rates for the first time in a year.

Asian shares rose to a one-month high and Chinese index futures signaled gains after both the S&P 500 Index and the Dow Jones Industrial Average rocketed to new records. With bets on a US rate increase Wednesday wedged at 100 per cent, the US dollar held gains versus major peers, while ceding ground to the Korean won and the Malaysian ringgit.

Government bonds maintained their advance as Treasuries continued to range trade. US crude fell from a 17-month high before an update on inventories.

The Fed's path to tighter monetary policy has been delayed throughout 2016, as first instability in Chinese markets, then the shock votes for Brexit and Donald Trump, put policy makers on the back foot. The US central bank is expected to boost borrowing costs just as the focus shifts back to governments, with fiscal easing at the hands of incoming US President Trump speculated to drive economic growth going forward.

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After Wednesday, traders see a two-in-three chance of additional rate increases from the Fed by June, futures show.

"We go into the New Year with the market and the Fed on the same page in terms of where rates are going," said Chris Weston, chief markets strategist in Melbourne at IG Ltd. "The recent upbeat sentiment - specifically in global equities - has not just been about what 'Trumponomics' could bring to inflation and growth, but we are genuinely seeing an improvement in the economic data flow in many developed markets."

Japan's Tankan gauge of sentiment among large manufacturers came in as economists expected for the fourth quarter, rising to 10 from six in the previous period. India also reports on wholesale prices Wednesday.

Healthcare stocks and utilities pushed the MSCI Asia Pacific Index up 0.2 per cent as of 9:20am Tokyo time, headed for its highest close since Nov 1.

Japan's Topix index fluctuated around its highest level this year.

Australia's S&P/ASX 200 Index jumped 0.7 per cent, the Kospi index in Seoul gained 0.3 per cent, while New Zealand's S&P/NZX 50 Index dropped 0.1 per cent.

US index futures fell 0.1 per cent early Wednesday, after the S&P 500 rose 0.7 per cent to a fresh all-time high and the the Dow Average neared 20,000 points.  FTSE China A50 Index futures rose 0.1 per cent in most recent trading, with the Shanghai Composite Index ending Tuesday up 0.1 per cent following the previous session's rout.

Futures on Hong Kong's Hang Seng and Hang Seng China Enterprises gauges added at least 0.3 per cent.

The won strengthened a second day, gaining 0.3 per cent as the ringgit increased by 0.2 per cent.

The yen was little changed at 115.06 per US dollar after pulling back by 0.2 per cent last session as the euro dropped 0.1 per cent.

The Bloomberg US dollar Spot Index, a gauge of the greenback against 10 major peers, fluctuated after rising 0.1 per cent on Tuesday and sinking 0.6 per cent in the session before that.

Traders say the US dollar should have a muted reaction to the Fed's expected 25 basis-point hike, but may see more volatile price action in reaction to Chair Janet Yellen's subsequent press conference.

Yields on 10-year Australian notes fell another three basis points, or 0.03 per centage point, to 2.79 per cent, while similar maturity New Zealand bonds yielded 3.30 per cent, down one basis point from Tuesday.

Treasuries due in a decade yielded 2.47 per cent, little changed for a third day.

In Japan, 10-year bond yields dropped one basis point to 0.075 per cent.

West Texas Intermediate crude declined 1.3 per cent early Wednesday to US$52.31 a barrel, following a four-day surge of more than 6 per cent.

The International Energy Agency said that the global oil glut will disappear and the market will become under-supplied in the first half of 2017 as cuts by Opec and other producers are felt.

US crude supplies probably shrank by 1.5 million barrels last week for a fourth straight decline, according to the Bloomberg survey. Supplies remain at the highest seasonal level in weekly data compiled by the EIA since 1982.

Copper futures slipped 0.1 per cent as gold held around US$1,159.81 an ounce.

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