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Hong Kong - Global stocks rallied with industrial metals and the yen weakened as increased prospects for stimulus in Japan and better-than-expected US jobs data brightened the global economic outlook.
The MSCI All-Country World Index rose for a third day and US equity index futures climbed. Japanese shares advanced the most since February and the yen fell for the first time in a week after Prime Minister Shinzo Abe’s ruling coalition won a fresh mandate to unleash pro-growth policies.
The dollar strengthened and Treasuries fell amid speculation the Federal Reserve will stand out among major central banks by not loosening monetary policy this year. Nickel advanced with copper and crude oil fell to less than $45 a barrel.
Global equities are almost back to where they were at the time of the UK’s June 23 vote to leave the European Union, which wiped almost $4trn off the value of the securities. Citigroup’s Surprise Index is showing data in the developed world that’s beating analysts forecasts by the most since January 2015, while shares are getting additional support from the prospect of fresh fiscal and monetary stimulus to contain the fallout from the Brexit vote.
Japan’s Nikkei newspaper reported that Abe would on Tuesday order the compilation of a stimulus package.
“We had good news globally - the jobs report in the US was strong and over the weekend we also had quite a clear decision in Japan,” said Christian Gattiker, head of research at Julius Baer Group in Zurich. “A lot of things are now meeting a very cautious European investor and make life not easy, but less threatening than just a week or two weeks ago.”
Stocks
The Stoxx Europe 600 Index added 0.6% at 11:39 for a third daily advance. All 19 industry groups rose, with gains exceeding 4% in ArcelorMittal and Glencore pushing commodity producers to the best performance. The FTSE 100 Index climbed 0.7%, moving toward a bull market. The UK benchmark has erased its post-Brexit drop thanks to a weaker pound and is up more than 19% from its February low.
S&P 500 futures gained 0.4%. Alcoa unofficially kicks off the second-quarter earnings season as it releases results after markets close Monday. The aluminum producer rose 1.8% in premarket trading. Analysts forecast profit at S&P 500 firms will drop 5.7% in the period, which would make it the fifth straight quarterly decline, the longest streak since 2009.
LafargeHolcim rose 2.7% after agreeing to sell an Indian building-materials business to Nirma for an enterprise value of about $1.4bn.
The MSCI Asia Pacific Index climbed 2%, with Japan’s Topix index surging 3.8% in Tokyo. The win for Abe’s ruling coalition in upper-house elections at the weekend will help the premier press ahead with stimulus and on Sunday he reiterated a pledge to take action.
The Bank of Japan is set to announce an expansion of its monthly bond and equity purchases on July 29 and Abe will probably introduce fiscal stimulus by year-end, according to Macquarie Bank.
Nintendo soared 25% in Tokyo as its new Pokemon Go game topped smartphone app rankings.
The MSCI Emerging Markets Index rose 1.4% in a third day of gains. The gauge has climbed 5.9% this year, compared with a 0.4% advance in the MSCI World Index of developed markets. Exporters led gains on Monday, with Taiwan Semiconductor Manufacturing climbing to a record and Samsung Electronics reaching a 15-month high.
Currencies
The yen slipped 1.6% to ¥102.17/$, heading for its steepest slide since June 23. The Korean won strengthened 1.3%, its biggest advance in a month, as last week’s US jobs report boosted the outlook for the nation’s exporters.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.5% after slipping 0.3% in the last session. Futures put the odds of a Fed rate increase this year at 21%, up from 12% before Friday’s payrolls figures. They showed zero odds of a cut before the end of the year.
“The US dollar is only slightly firmer as interest-rate markets have only slightly firmed the chances of a Fed rate hike this year,” said Imre Speizer, a market strategist at Westpac Banking in Auckland. “That still appears too light, so there’s scope for further upside in both during the week ahead, as long as a decent average pace of payrolls gains is sustained during the months ahead.”
The MSCI Emerging Markets Currency Index advanced for a third day, rising 0.3%.
The offshore yuan ended a four-day retreat as data released over the weekend signaled that growth in the world’s second-largest economy is beginning to stabilise. China’s factory-gate deflation eased for the sixth month in a row, while consumer inflation accelerated more than expected.
Commodities
The Bloomberg Commodity Index rose 0.4%, rebounding from a 3.7% weekly loss that marked its steepest slide since January. Nickel jumped 2.5% in London as copper climbed 1.4%. Gold fell 0.6%, retreating from its highest close since March 2014. Corn gained 1%, rallying for the third day in Chicago since entering a bear market on Wednesday.
Commodities are poised to strengthen in the second half and through 2017 as spending cuts restrain supply and demand continues to grow at a moderate pace, according to Citigroup. The bank is “especially bullish” for next year as inventory reductions become more pronounced, analysts led by Ed Morse said in an emailed note received on Monday.
West Texas Intermediate crude fell 1.4% to $44.76 a barrel, after tumbling 7.3% last week. Crude resumed losses after data from Baker Hughes showed US drillers boosted the number of rigs targeting oil to the highest in 12 weeks.
Natural gas futures rose as much as 2.2%, the most this month, as above-average temperatures are forecast across much of the US.
Bonds
Treasuries fell, lifting 10-year yields by two basis points to 1.38%. Similar-maturity debt in Japan yielded minus 0.28%, after the rate touched an all-time low of minus 0.30% on Friday.
Japan’s biggest bond bulls say the plunge in yields below zero in Tokyo foreshadows record-breaking gains for US Treasuries. Mitsubishi Kokusai Asset Management says US 10-year yields will drop to 1% as soon as this month, having touched an unprecedented 1.32% last week.
Sumitomo Mitsui Trust Asset Management says it’s likely in 2017, and Mizuho Asset Management predicts the figure may go even lower.
“Welcome to the world of Japanification,” said Hideo Shimomura, the chief fund investor at Mitsubishi UFJ Kokusai in Tokyo, which oversees about $119bn. “One percent is inevitable.”
