Asia: Shares gain, won advances as Fed seen on hold; Topix slips

[WELLINGTON] Asian shares climbed and the South Korean won rallied to a one-year high as reduced bets on US interest-rate increases spurred appetite for higher-yielding assets. Japanese equities retreated after the yen posted its strongest weekly gain since the UK voted to leave the European Union.

The MSCI Asia-Pacific Index of stocks rose for a sixth day, with equity benchmarks climbing more than 0.6 per cent in Hong Kong, Australia and South Korea. US index futures extended gains after Friday's weaker-than-expected reading on US gross domestic product. Crude was little changed above US$41 a barrel in New York. The won rose a fifth day as Malaysia's ringgit rallied versus the dollar.

Global equities rallied in July to their best month since March on prospects central banks will add to stimulus or refrain from reducing it. Traders peeled back bets on a US rate hike this year after data Friday showed annualised GDP rose 1.2 per cent last quarter, less than half the 2.5 per cent projected by economists.

The Bank of Japan added to its easing last week and economists forecast policy makers in Australia and England will cut their benchmark interest rates from record lows this week. In Japan, Prime Minister Shinzo Abe may unveil details of his fiscal package on Tuesday.

"The market's saying that any rate hike is likely to be delayed further; the dollar's weakening, especially against the euro," said Kelvin Tay, regional chief investment officer at UBS Group AG's wealth management business in Singapore.

"A lot of the G-4 currencies are at negative yields. That means that the emerging-market currencies, especially the higher yielding ones, will be more attractive."

The MSCI Asia Pacific Index rose 0.7 per cent at 11:37 am Tokyo time. In Australia, commodity stocks led the S&P/ASX 200 Index up 0.8 per cent, while the Kospi index gained 0.6 per cent in Seoul. Hong Kong's Hang Seng Index surged 1.6 per cent, while Chinese shares slid 0.8 per cent.

Futures on the S&P 500 Index climbed 0.4 per cent, after the underlying benchmark rose 0.2 per cent on Friday in a second day of gains.

The Topix slipped 0.1 per cent, following a 6.2 per cent advance in July.

"The very low amount of stimulus from the BOJ does leave the market clearly expecting significant move from Prime Minister Abe in his announcement," Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty in Sydney, said by phone.

"Overall, we remain concerned about the impact of tighter US policy, but that can easily be overwritten by a significant stimulus package from Japan."

The yen retreated 0.6 per cent to 102.63 per US dollar after soaring 4 per cent last week.

BOJ Governor Haruhiko Kuroda's decision to aim low with his stimulus move raises the stakes for Abe to deliver on a pledge for "bold" fiscal stimulus on Tuesday, when the government is due to announce details of a more than 28 trillion yen (S$367.3 billion) spending package.

The won increased 0.7 per cent, touching its strongest level since June 2015, while the ringgit gained 1 per cent after weakening 1 per cent last month. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, added less than 0.1 per cent after sliding 1.3 per cent last session.

"Just at a time when evidence was building that the US economy was in a position for the Fed to again contemplate rate hikes, some weak domestic data or a global event quite quickly scuttles those plans," Philip Borkin, a senior economist in Auckland at ANZ Bank New Zealand Ltd, said in a note to clients.

While some Fed officials have "come out noting that it is just one data point and we shouldn't overreact, the fact remains that many on the FOMC appear to be looking for excuses not to hike," he said, referring to the Federal Open Market Committee.

Most other major currencies maintained their gains from Friday, with Australia's dollar up 0.2 per cent at 76.11 US cents following a 1.2 per cent jump, and the euro steady at US$1.1171 after strengthening 0.9 per cent last session.

BLOOMBERG