Asia set for more stock gains as US rate outlook fuels rebound

[TOKYO] The global stock rally that saw US equities cap their longest advance this year looked set to continue in Asia, with Australian shares climbing and index futures from Japan to Hong Kong signaling further gains. The dollar and the yen maintained losses.

Futures on stock gauges from Tokyo to Seoul climbed more than 1 per cent in recent trade, with speculation the Federal Reserve will hold off raising interest rates until 2016 boosting riskier assets, and helping the Standard & Poor's 500 Index to its fifth day of gains. Australia's dollar hovered near a two- week high before the central bank there reviews already record- low borrowing costs, while US oil held above US$46 a barrel.

"The calm that has descended and the value that has been added to global markets is pleasing, however there are currently large mismatches across asset classes to the point of being contradictory in theory," Evan Lucas, a markets strategist in Melbourne at IG Ltd, said in an e-mail. "Although the RBA is likely to be a non-event for currency today, traders and economists will be combing over the statement for any hints of rate cuts," he said, referring to the Reserve Bank of Australia.

Stocks have been rallying since capping their worst quarter in four years, as unexpected weakness in the US labour market pushes out the probable timeline for rate increases. Odds the Federal Reserve will pull the trigger on tightening this month have fallen to 10 per cent, suppressing the dollar while bolstering assets in emerging and riskier markets that have benefited from the era of cheaper money. Global equity values have climbed back above $60 trillion this month after almost US$10 trillion was erased last quarter.

S&P 500 Index futures fell 0.1 per cent to 1,972 by 8:42 am Tokyo time following a 1.8 per cent surge in the US benchmark Monday. The five-day rally is the longest for the S&P 500 since December last year and amounts to 5.6 per cent since Sept 29. Industrial companies and energy stocks drove last session's climb as crude oil rallied.

Futures on Japanese indexes foreshadowed similar gains for stocks there, with contracts on the Nikkei 225 Stock Average bid up 1.4 per cent in the Osaka pre-market, to 18,320. Yen- denominated futures on the index traded in Chicago dropped 0.2 per cent to 18,325 after jumping 2.7 per cent in the previous session.

The Trans-Pacific Partnership trade deal brokered between the US and a dozen Pacific-rim nations in Atlanta Monday may bolster stocks, said Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co in Tokyo.

The agreement "has a lot of potential to become a big deal for the US and Japan," Mr Matsuno said by phone. "Concerns over the global economy had become ingrained in the market's mindset. It's possible that the TPP has triggered some regret over having sold too much." In Australia, where markets didn't settle Monday, the S&P/ASX 200 Index jumped 1 per cent Tuesday, while New Zealand's S&P/NZX 50 Index, the first major stock gauge to start trading each day in the Asia-Pacific region, climbed 0.8 per cent in a third day of gains. Futures on South Korea's Kospi index added 1.1 per cent in recent trading.

Futures on Hong Kong's Hang Seng Index increased 1.2 per cent in recent trading, rising with contracts on the Hang Seng China Enterprises Index, a gauge of mainland equities listed in the city. Mainland Chinese markets remain closed through Wednesday for the week-long National Day holidays.

As well as the Australian rate review, the Philippines issues an update on consumer prices and a gauge of India's services industries is due.

The Bloomberg Dollar Spot Index, a gauge of the US currency against 10 major peers, was little changed Tuesday after falling 0.1 per cent last session in a third day of losses. Weaker-than-expected American payrolls data last Friday damped the outlook for the first rate increase since 2006, with traders pushing out bets on a hike to March next year.

The yen, regarded as a haven investment along with government bonds, was steady at 120.43 per dollar after sinking 0.5 per cent on Monday.

"The way the market is looking at the payrolls numbers is weak enough to diminish the case for higher US rates, but not weak enough to point to a materially weaker economy," said Adam Cole, London-based head of global foreign-exchange strategy at Royal Bank of Canada. "They're positive for risk appetite." The Aussie was little changed at 70.85 US cents following Monday's surge of as much as 0.9 per cent to 71.11 cents, the highest level since Sept. 22. The RBA will keep rates at 2 per cent Tuesday, according to all 27 economists surveyed by Bloomberg.

New Zealand's dollar also held on to gains from last session, with non-deliverable forwards on Asian emerging-market currencies including the Indonesian rupiah to the Malaysian ringgit rose at least 0.2 per cent.

West Texas Intermediate crude was little changed at US$46.29 a barrel after adding 1.6 per cent on Monday. The gains were fueled by data showing the number of active rigs in the US slumped to a five-year low, a sign oil production may be slowing amid the global glut.

Copper futures were steady at US$2.3565 a pound on the Comex, following Monday's 1.3 per cent climb, while gold for immediate delivery was little changed at US$1,135.83 an ounce after retreating 0.3 per cent.

The Bloomberg Commodity Index rose 1 per cent Monday, extending its 0.9 per cent advance from Friday as the weaker dollar buoyed raw-material prices.

BLOOMBERG