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Stocks outside Japan jump on dovish Yellen as oil, bonds climb

Wednesday, March 30, 2016 - 13:00

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[WASHINGTON] Asian stocks outside Japan surged and bonds climbed after Federal Reserve Chair Janet Yellen reasserted the central bank's gradual approach to raising interest rates.

Oil rallied as the dollar headed for its worst month in almost five years.

Shares from Kuala Lumpur to Seoul and Shanghai rallied after US equities erased their losses for the year, with Ms Yellen indicating deteriorating world growth warranted a slow approach to tightening monetary policy.

The comments ignited gains in government debt as diminishing prospects for first-half US rate increases had the Bloomberg Dollar Spot Index near a five-month low.

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Japanese stocks retreated amid a revival in the yen, while US oil gained for the first time in five days. Nickel climbed as copper and gold retreated.

Traders reduced bets on a Fed rate increase next month to zero after Ms Yellen dialed back some of the commentary made by other policy makers the past two weeks, emphasizing during her appearance at the Economic Club of New York that the central bank remains wary of raising rates amid threats to American growth from a slowing global economy.

Financial markets have been hanging on the outlook for US borrowing costs since the Fed reduced the expected pace of rate increases this year to two from four at its March gathering.

Since then, some Fed officials had asserted that every meeting remains in play.

"For the first time in a long time, Janet Yellen speaks and markets go up," Niv Dagan, executive director at Peak Asset Management LLC in Melbourne, said by e-mail.

"It is clear that US interest rates won't rise any time soon."

The MSCI Asia Pacific excluding Japan Index climbed 1.3 per cent as of 12:42 pm Tokyo time, rising for the first time in six days to snap its longest slump in more than a month.

MSCI's broader, dollar-denominated Asia Pacific gauge, which includes Japan, added 0.8 per cent, even as the Topix index slid 0.7 per cent in Tokyo. The regional benchmark has surged 8 per cent in March, its best performance since October.

The yen, which often moves at odds with Japanese shares, climbed a second day, adding 0.2 per cent to 112.49 per dollar after snapping a seven-day decline on Tuesday.

The Japanese currency is headed for a 0.2 per cent advance in March, after surging 7 per cent in February. Japan's Nikkei 225 Stock Average was down 0.5 per cent, paring its advance this month to 6.2 per cent.

The Shanghai Composite Index jumped 1.4 per cent along with Hong Kong's Hang Seng index gained 1.4 per cent, while the Hang Seng China Enterprises gauge soared 2.1 per cent.

Australia's S&P/ASX 200 Index was up 0.1 per cent. The Kospi index increased 0.3 per cent.

Malaysia's benchmark stock index, the FTSE Bursa Malaysia KLCI Index, rose 0.3 per cent, extending the world's longest bull-market run.

The gauge has more than doubled from its 2008 lows without succumbing to a 20 per cent drop.

Futures on the Standard & Poor's 500 Index added 0.1 per cent following a 0.9 per cent jump in the US benchmark that put it back at levels last seen at the end of 2015.

Ms Yellen's speech "painted a very dovish picture for the inflation outlook in 2016, and although she didn't directly use this term, she clearly sees the US economy as two-speed," Evan Lucas, a markets strategist at IG Ltd in Melbourne said in an e-mail to clients.

"The yen now has to contend with negative rates not having the desired effect, the Bank of Japan assessing other unconventional monetary policy options and a US central bank unlikely to raise rates."

As the yen extended gains, South Korea's won paced a rally in Asian emerging-market currencies. Bloomberg's dollar index held declines after sliding 0.8 per cent last session.

The gauge, which tracks the greenback against 10 major peers, has lost 3.4 per cent in March, set for a second straight monthly drop.

The won surged 0.8 per cent as the combination of the weaker dollar and crude oil's rebound spurred a 1 per cent gain for Malaysia's ringgit. The Thai baht strengthened for the first time this week.

The Fed would act "cautiously" as it looks to raise rates against a backdrop of deteriorating global growth, Ms Yellen said.

Policy makers including St. Louis Fed President James Bullard and San Francisco Fed boss John Williams said last week that higher borrowing costs were possible as soon as next month.

"Ms Yellen indicated that core Fed members take into account the global context more than regional officials," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp in New York.

"A June rate hike would be difficult as global financial turmoil earlier this year affects the real economy with a time lag."

Odds of a US rate rise next month slipped to zero Tuesday, from 10 per cent a week ago, while the probability of an increase at the Fed's June meeting declined to 28 per cent, from 46 per cent a week earlier, according to futures trading tracked by Bloomberg.

Australian government debt led the charge higher in Asia, with 10-year yields sliding seven basis points, or 0.07 per centage point, to 2.50 per cent. Rates on similar maturity Korean bonds dropped two basis points to 1.80 per cent, while yields on Japanese notes due in a decade declined one basis point to minus 0.1 per cent.

Yields on 10-year Treasuries were little changed at 1.81 per cent after they fell eight basis points last session. A bond-market gauge of inflation expectations rose Tuesday as investors bet on a faster pace of price increases.

West Texas Intermediate crude snapped a four-day, 7.7 per cent tumble to rise 0.7 per cent Wednesday, to US$38.55 a barrel. Brent crude gained 0.4 per cent to US$39.30. The weaker dollar makes crude and other commodities cheaper in other currencies.

Nickel for three-month delivery advanced 0.5 per cent to US$8,495 a metric ton on the London Metal Exchange, while copper retreated 0.2 per cent to US$4,883.

Gold declined 0.6 per cent to US$1,234.96 an ounce in the spot market following a 1.7 per cent jump last session.

BLOOMBERG

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