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Hong Kong - Japanese shares drove gains in Asia, set for their steepest two-day climb since February, and the yen weakened after Prime Minister Shinzo Abe said he’ll order a fresh round of fiscal stimulus. The pound strengthened as the UK moved closer to getting a new leader.
The MSCI Asia Pacific Index climbed to levels last seen in April after the S&P 500 Index closed above a record high that had stood for more than a year. The yen extended its biggest loss since October 2014 after an election victory for Abe’s coalition emboldened the premier to step up economic support, while the pound rose for a third day as British Home Secretary Theresa May prepared to take over as prime minister. US crude traded near a two-month low, while nickel gained. Australian debt led government bonds lower.
Global equities are almost back to where they were when the UK voted to leave the European Union, having rebounded on prospects for stimulus in some of the world’s leading economies. Abe said he would order ministers on Tuesday to begin compiling a stimulus package that one of his advisers has recommended should be 20 trillion yen ($199bn) in the current fiscal year. The Bank of England is forecast to cut interest rates this week and traders are betting there will be further monetary easing in the euro area this year.
”It looks like the UK political process is moving much more swiftly than had been anticipated and that’s helped," said Mitul Kotecha, head of Asia currency and rates strategy at Barclays in Singapore. “On top of that in Japan, Abe getting a super majority is fueling expectations of economic stimulus.”
Finance ministers from EU member countries will meet for talks in Brussels on Tuesday and an international Court is due to deliver its ruling on a challenge brought by the Philippines to China’s claim to more than 80% of the South China Sea. In addition, a two-day summit between the EU and China, focusing on political and economic relations, begins in Beijing.
Stocks
The MSCI Asia Pacific Index gained 1.3% as of 13:51 in Tokyo, after rallying 1.9% on Monday. The Topix climbed 2.8%, almost wiping out the losses recorded since Britain’s so-called Brexit vote was held on June 23. Taiwan’s benchmark was set for its highest close since November.
Automakers led gains among Japanese exporters, with Toyota rising more than 3% and Mazda surging as much as 8%. Nintendo jumped for a fourth day, taking its advance since July 6 to more than 50%, after its Pokemon Go mobile game became an instant hit. South32, which owns the world’s largest silver and lead mine, surged to a one-year high in Sydney after Credit Suisse said it expects the company to return cash to shareholders.
Futures on the S&P 500 added 0.1% following the gauge’s 0.3% advance to an all-time high in the last session. Alcoa unofficially kicked off the US earnings season after markets closed Monday, reporting profit for the second quarter that topped analysts’ estimates.
Currencies
Japan’s currency fell 0.2% to 103.03 per dollar, after sliding 2.3% in the last session.
Sunday’s election, which saw Abe’s ruling group score a convincing victory in the upper house, “opens up the scope for sweeping reforms,” said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank. "The Bank of Japan is likely to add to the macroeconomic stimulus package by easing monetary policy along with a more supportive fiscal environment.”
The pound rose as much as 0.7% to a one-week high after UK Prime Minister David Cameron said his replacement would be installed by Wednesday night, lifting the uncertainty over the nation’s leadership following the EU vote. Theresa May is the sole candidate to replace him after Conservative Party leadership hopeful Andrea Leadsom announced her withdrawal from the contest on Monday.
The Australian dollar rallied 0.7%, the best performance among 31 major currencies, as a report showed business confidence picked up last month and investors favored higher-yielding currencies. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, fell 0.2% after rising 0.5% on Monday.
While Friday’s better-than-estimated US payrolls data spurred an increase in bets on the Federal Reserve raising rates this year, the odds of a hike by December are just 29%, from 50% a month ago, according to futures trading tracked by Bloomberg.
Commodities
West Texas Intermediate crude traded at $44.82 a barrel, little changed from a Monday close of $44.76 that was the lowest since May 10. Iran plans to double oil exports as long as the increase is absorbed by global markets, while Libya’s state crude producer is seeking to reopen oil ports and restore output.
Nickel gained 0.8% to $10 115 a metric tonne in London amid speculation there will be supply cuts in the Philippines, the biggest ore producer. The nation’s government has put mines on notice that operations falling short of environmental and welfare standards will be shut down and Goldman Sachs sees the price climbing to $12 000 over the next six months assuming a quarter of the nation’s output is taken out of the market.
Palm oil fell 0.3% in Kuala Lumpur, where it is on the cusp of entering a bear market. Inventories in Malaysia are set to increase for the first time since November, according to a Bloomberg survey, while a growers’ group estimates June production to have climbed 10% from a month earlier.
Bonds
The yield on US Treasuries due in a decade increased by one basis point to 1.44%, after climbing seven basis points on Monday. The rate on similar-maturity Australian bonds climbed five basis points to 1.95%.
Kathleen Gaffney, whose Eaton Vance Bond Fund is beating all of its peers this year after rebounding from a loss, warned Treasuries may snap back from a record-setting rally that drove 10- and 30-year yields to all time-lows in the past week. Demand for the securities strengthened as investors sought alternatives to the negative yields offered by debt in Germany and Japan.
“An unwind in the Treasury market” is going to happen at some point, Gaffney, who is based in Boston, said Monday on Bloomberg Television. “With everyone jumping on board with the yield grab, it’s going to be really tough to get out at just the right time.”
The cost of protecting corporate bonds against nonpayment in Japan has dropped to a 10-month low, according to Citigroup and CMA prices for the iTraxx Japan index. The iTraxx Australia index fell to the lowest since November.
