Equity rally extends to Asia as higher rates seen

[SYDNEY] Stocks in Asia advanced as investors bet the global economy can withstand tighter financial conditions as growth picks up. The euro rose to the highest level in a year while oil continued to rebound.

Banks and technology shares led gains in the MSCI Asia Pacific Index, after the S&P 500 Index rebounded from the biggest selloff in six weeks. The US dollar slid against most major currencies, with the pound building on recent gains as Bank of England chief Mark Carney said rates may need to rise soon. The loonie also climbed as Canada's Stephen Poloz reiterated he's considering tighter policy. Oil advanced for a sixth straight session.

This week has seen central bankers from Europe to the US affirm to investors that interest rates are heading higher, triggering pronounced moves in currency markets and lending support to equity investors willing to believe in an expansion of global economic growth.

Concerns about the relative strength of America's economy have dragged the Bloomberg dollar index down more 6 per cent this year at the same time that global equities surged 11 per cent.

The US financial sector had the biggest gains in the S&P 500 on Wednesday, and then rallied further after the close of regular trading as all 33 banks received the greenlight from the Federal Reserve for capital return plans. Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co climbed after lifting dividends and buying back shares.

China's PMI might have declined in June after unexpectedly remaining unchanged in May, reflecting government offers to cut overcapacity and leverage. That reading is due Friday.

Japan's calendar is also heavy with economic data on Friday, with reports due on inflation, factory output, unemployment, household consumption and housing starts.

Currencies

The Bloomberg Dollar Spot Index slipped 0.2 per cent as of 11:01am in Tokyo, dropping for a third day to the lowest since October. The yen strengthened 0.1 per cent to 112.18 per US dollar.

The euro increased 0.2 per cent to US$1.1404, the highest level since last year's Brexit vote. The shared currency surged 1.4 per cent on Tuesday then had a tumultuous Wednesday session amid speculation investors misjudged comments from European Central Bank President Mario Draghi.

The pound climbed 0.3 per cent to US$1.2961, heading for a seventh straight day of gains, the longest winning streak since April 2015.

The Canadian dollar added 0.1 per cent after jumping 1.2 per cent on Wednesday.

Stocks

Japan's Topix index gained 0.6 per cent, heading for a third straight weekly advance. Australia's S&P/ASX 200 Index rose 0.7 per cent and the Kospi index advanced 0.7 per cent.

Hong Kong's Hang Seng Index climbed 0.7 per cent and the Shanghai Composite edged up 0.3 per cent.

Singapore's Straits Times Index rallied one per cent.

Futures on the S&P 500 Index added 0.2 per cent. The underlying gauge rose 0.9 per cent on Wednesday, bouncing back from a loss of 0.8 per cent. It's on pace for a quarterly gain of 3.3 per cent, the seventh straight advance. The Nasdaq Composite Index jumped 1.4 per cent on Wednesday.

Commodities

WTI futures advanced 0.4 per cent to US$44.91 a barrel, extending a 1.1 per cent advance from the previous session. Prices gained as government data showed a drop in US gasoline supplies that have remained stubbornly high at the start of the summer driving season.

Gold rose 0.2 per cent to $1,252.21 an ounce.

Bonds

The yield on 10-year Treasuries were flat after gaining two basis points on Wednesday and jumping seven basis points during the previous session.

Australian benchmark yields rose three basis points to 2.49 per cent, after surging 11 basis points on Wednesday.

BLOOMBERG