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Hong Kong - Asian stocks rose for the first time in four days and the dollar weakened versus most peers as investors questioned whether financial markets may have overreacted to Donald Trump’s shock US election victory. Oil rallied as major producers seek to agree output cuts.
Energy shares and Japanese banks led gains on the MSCI Asia Pacific Index as UK equity index futures advanced. Bloomberg’s dollar index extended the last session’s retreat from a nine-month high as a gauge of expected exchange-rate volatility fell for the first time in a week.
Crude oil climbed to a two-week high as OPEC members worked toward agreeing individual production limits. Zinc fell from a six-year high as gold edged higher, while Japan’s 10-year bond yield increased to the highest level since March.
Trump’s victory triggered routs in global bonds and emerging markets, while boosting the dollar and industrial metals on speculation his infrastructure spending plans will spur inflation and prompt the Federal Reserve to speed up the pace of US interest-rate increases.
Post-election moves in those assets are being pared after their relative strength indexes swung to extreme levels, an indication that initial price reactions were excessive.
“Things might have got a little bit overdone with the market having got very excited about reflation and what it’s going to mean,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2bn.
“Most of the sharp adjustment is behind us now and from here you’ll need to see tangible evidence of some of those policy moves.”
While volatility in financial markets is easing, US monetary policy remains high on investors’ minds. Fed Governor Daniel Tarullo said on Tuesday an interest-rate rise next month is more likely than before and fed funds futures imply a 94% probability of an increase.
Fed Presidents James Bullard, Neel Kashkari and Patrick Harker are all scheduled to speak on Wednesday and may shed more light on the likely trajectory of borrowing costs in the world’s biggest economy.
Stocks
The MSCI Asia Pacific Index added 0.9% as of 08:23, with a gauge of energy stocks climbing 1.2%. Japan’s Topix index rallied to a nine-month high, driven by gains in banking stocks as investors bet earnings at financial companies will benefit from the recent pickup in bond yields. The Topix Banks Index has jumped more than 20% in five days, the steepest surge since 2008.
“It’s gradually turning to a bull market,” said Yoshinori Shigemi, a global markets strategist at JPMorgan Asset Management in Tokyo. “There are two factors - one is faster growth in the US economy, and another is a stronger dollar, meaning a weaker yen.”
Tencent gained more than 2% in Hong Kong before Asia’s largest Internet company reports earnings. Philippine stocks rebounded from an eight-month low and Indonesian shares climbed from their lowest level since July.
Futures on the S&P 500 Index added 0.1% after the underlying gauge climbed 0.8% on Tuesday, when the Dow Jones Industrial Average closed at a record high. Futures on the UK’s FTSE 100 Index rose 0.4%.
Currencies
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, fell 0.1%. It declined by a similar amount on Tuesday after surging more than 3 percent in the four trading days following the November 8 US election. The yen strengthened 0.1% and the euro gained 0.2%, after the JPMorgan Global FX Volatility Index dropped from a four-month high on Tuesday.
“We are starting to see the markets settle a bit after what seemed to be a pretty quick and vicious move into oversold territory,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney.
“We are beholden to headline risk and further details that come out from Trump as his new administration is forming. Volatility will still be high and uncertainty will be higher.”
The yuan dropped to an eight-year low of 6.8703 per dollar as analysts cut forecasts for the currency amid concern a Fed rate increases will spur capital outflows from China. Standard Chartered Plc weakened its year-end projection to 6.90, after similar moves were announced on Tuesday by HSBC, UBS and Australia & New Zealand Banking.
Commodities
Crude oil rose 0.6% to $46.07 a barrel in New York, after a 5.8% jump on Tuesday that was its biggest gain ins even months.
Members of the Organisation of Petroleum Exporting Countries are holding discussions regarding how to share output cuts pledged at a September meeting in Algiers. The group said it would reduce output to a range of between 32.5 million and 33 million barrels a day. The organization pumped 34.02 million barrels a day in October, according to a Bloomberg News survey.
Copper and aluminum declined in London, extending their retreats from one-year highs reached last week, and zinc retreated from its highest close since 2010.
Metals rallied last week on a combination of increased speculative interest in China and optimism Trump’s pledge to spend as much as $1trn on infrastructure will boost demand.
The 14-day relative strength index for the London Metal Exchange Index climbed as high as 87 last week, well above the 70 threshold that signals to some traders prices may have risen too far, too fast.
“Investors took the opportunity to lock in gains after some big moves over the past week,” Australia & New Zealand Banking said in a note on Wednesday. “Skepticism grew about the impact that Trump’s infrastructure spending program would have on demand.”
Bonds
The yield on US Treasuries due in a decade was little changed at 2.22%, after retreating from its highest level of the year in the last session. It’s still up almost 40 basis points since Trump’s election, having surged amid growing expectations the Fed will boost interest rates next month and beyond.
Trump’s election helped drive a bond-market rout that has pushed Bank of America’s Global Broad Market Index down 1.5% in November, heading for the biggest monthly decline since May 2013. The president-elect has pledged to cut taxes and boost spending on infrastructure.
Japan’s 10-year government bonds fell for a fifth day, lifting their yield to 0.015%. Tuesday marked the end of almost eight weeks of negative rates.
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