Asia: Shares at 15-month high, US dollar soft on less hawkish Fed

[TOKYO] Asian shares hit 15-month highs on Tuesday while the US dollar and US bond yields were on the back foot on the prospect of a less-hawkish Federal Reserve policy trajectory.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 per cent to 15-month highs, with tech-heavy Seoul and Taipei shares hitting two-year highs while Hong Kong's Hang Seng scaled 1-1/2-year highs.

Japan's Nikkei dropped 0.3 per cent, weighed by financial stocks, which were hurt by lower US yields and exporter stocks, which fell on the yen's gains against the US dollar.

While Asian shares have been supported by signs of strong global economic growth, concerns about protectionism cast a shadow after financial leaders of the world's biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States.

Wall Street shares drifted lower on Monday as investors worried that President Donald Trump's plan to cut taxes and boost the economy could take longer than earlier expected.

"Any fiscal spending by the Trump administration will not come until August at earliest and probably much later. So any economic benefit of that will show up only next year," said a senior trader at a European bank.

"So the markets are gradually pricing that in, winding back their initial rally after the elections."

Although Mr Trump promised in early February to deliver a "phenomenal" tax plan within a few weeks, no such details have been released yet.

"US stocks valuations are getting really expensive, so I expect the market to be capped for now. That also means Japanese shares are unlikely to gain further," said Tatsushi Maeno, senior strategist at Okasan Asset Management.

Expectations that the Federal Reserve will have to step up rate hikes to counter inflationary pressure from Mr Trump's stimulus are also waning after the Fed dropped no hints of an acceleration in credit tightening last week.

Chicago Federal Reserve President Charles Evans, in one of the first official comments after the Fed raised rates as expected last week, reiterated that message on Monday.

He said that two more interest rate hikes this year were likely, disappointing investors who had anticipated rates to be increased more quickly.

Evans's comments helped to bring down the 10-year US Treasuries yield to 2.461 per cent, its lowest level in two weeks. It last stood at 2.479 per cent.

Lower yields undermined the greenback's allure, softening the US dollar to three-week lows near 112.26 yen in early Asian trade.

The euro ticked up to US$1.0758, near Friday's six-week high of US$1.07825, maintaining its gains made last week after a election defeat for Dutch far-right leader Geert Wilders, which eased broader fears of a populist drift in European politics.

In France, centrist Emmanuel Macron solidified his status as front-runner in the presidential election in a televised debate on Monday.

"At the moment, worries about the election have subsided a bit after the Dutch elections. But I expect the market to become more nervous near the election, given last year's experiences (with Brexit and the US elections)," said Kazushige Kaida, head of foreign exchange at State Street.

The US dollar's index against a basket of six major currencies stood at 100.26, after hitting a six-week low of 100.02 on Monday.

The spectre of slower US rate hikes has been helping high-yielding currencies.

The Australian dollar traded at US$0.7706, after hitting a 4-1/2-month high of US$0.7748 on Monday. It has risen 2.0 per cent since the Fed's policy meeting last week.

The South African rand has gained 4 per cent since then to a near 1-1/2-year high while the Brazilian real rose 3.2 per cent.

Oil prices rose in Asia on expectations that an Opec-led production cut to prop up the market could be extended.

Prices for front-month Brent crude futures, the international benchmark for oil, gained 0.4 per cent to US$51.83 per barrel.

Opec members increasingly favour extending the output curb beyond June to balance the market, sources within the group said, although they added that this would require non-Opec members such as Russia to also step up their efforts.

REUTERS