Asia: Stocks join US rebound as Fed outlook weighs on US dollar

[WELLINGTON] Asian stocks rebounded from a one-month low after dovish comments from Federal Reserve governor Lael Brainard triggered gains in US shares and weighed on the dollar.

The MSCI Asia Pacific Index rose for the first time in four days as shares advanced in Australia, Japan and South Korea. Futures foreshadowed gains in China, Hong Kong and Taiwan after the S&P 500 Index staged its steepest reversal since January.

The yen strengthened for a second day versus the greenback after expectations cooled for an interest-rate increase at next week's Fed meeting. Copper advanced before a slew of Chinese economic data, while oil fell to about US$46 a barrel.

Ms Brainard counselled continued prudence in the move toward tighter Fed policy, even as she acknowledged that the world's largest economy was making gradual progress toward achieving the authority's goals.

Her comments came after financial markets were jolted out of a period of relative calm by concern some central bank officials globally are questioning the ability of loose policy to revive inflation and economic growth. The probability of a September rate hike by the Fed dropped by eight percentage points on Monday to 22 per cent, futures prices indicate.

"We have seen a slight calming of nerves," Chris Weston, chief market strategist in Melbourne at IG Ltd, said in an e-mail.

"Event risk in Asia today will center on China's August data dump - I am not sure this data will rock sentiment too greatly, unless of course it is a disaster. However, we have seen of late that boring is good."

China reports on retail sales, industrial output and fixed-asset investment Tuesday, with figures on lending and money supply also possible. While markets in India are shut for a holiday, those in Indonesia, Malaysia and Singapore return after missing out on Monday's rout in Asian equities.

Stocks

The MSCI Asia Pacific Index rose 0.6 per cent as of 9:15am Tokyo time, after a 1.9 per cent slide in the last session that marked its steepest loss since June. Japan's Topix index added 0.6 per cent, while Australia's S&P/ASX 200 Index added 1.1 per cent and South Korea's Kospi index rallied 0.9 per cent.

Futures on the S&P 500 fell 0.1 per cent, after a 1.5 per cent jump in the US benchmark. Contracts on Hong Kong's Hang Seng Index added 0.8 per cent and contracts on the Hang Seng China Enterprises Index, which tracks mainland Chinese shares listed in the city, climbed 1.1 per cent. FTSE China A50 Index futures rose one per cent.

Currencies

The yen strengthened 0.1 per cent to 101.71 per US dollar, after gaining 0.8 per cent in the last session as Ms Brainard said the case for the Fed to raise rates was "less compelling".

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed after dropping 0.3 per cent on Monday.

Australia's dollar, a bellwether for sentiment toward China, was steady at 75.62 US cents. South Korea's won gained 0.5 per cent, snapping a three-day losing streak, while Malaysia's ringgit was down 0.4 per cent from Friday's close.

Commodities

West Texas Intermediate crude dropped 0.6 per cent to US$46.03 a barrel, after gaining 0.9 per cent on Monday. US data due Wednesday are forecast to show the country's oil inventories rose by 4 million barrels last week, which may fuel concerns over a glut.

Opec also revised its projections for rival supplies in 2017, predicting an increase in output from outside the group instead of a decline, the latest sign that the global surplus is persisting. Major producers are due to meet in Algiers later this month.

Copper futures due in December added 0.2 per cent on the Comex, building on Monday's 0.4 per cent advance. China is the world's largest consumer of industrial metals and Tuesday's data are expected to show industrial output increased 6.2 per cent from a year earlier in August.

BLOOMBERG