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Hong Kong - Stocks were buoyed by the recent pickup in oil prices, while the dollar strengthened and U.S. Treasuries extended losses amid mounting speculation the Federal Reserve will raise interest rates. The yen and gold both declined for an eighth day.
The Stoxx Europe 600 Index rose toward a two-week high as energy companies led gains on the MSCI Asia Pacific Index. The dollar appreciated versus most of its peers and benchmark Treasuries fell for a fifth day after a report showed US services output expanded in September at the fastest pace in almost a year.
German bunds halted a three-day losing streak before the European Central Bank releases the minutes of its last policy meeting. Crude retreated from its highest level since June, while gold sank to a three-month low.
“Data has been consistent with the Fed moving in December,” said Chris Green, the Auckland-based director of economics and strategy at First Capital.
“The rebound in crude oil adds to the positive backdrop for inflation and that could provide a rationale for the rates to move as well. The Fed has a delicate balancing act. They’d want to normalize rates as the economy improves but at the same time they don’t want to scare the financial system.”
The outlook for monetary policies in the world’s biggest economies is dominating investor sentiment this week, with bets on a Fed rate rise in December mounting amid signs that unprecedented stimulus is drawing to an end in Europe and Japan.
The ECB’s minutes may shed light on whether the authority plans to rein in its bond-buying, while American jobs numbers on Friday will help shape expectations for US borrowing costs before the nation’s earnings season kicks off next week.
Stocks
The Stoxx Europe 600 Index added 0.4% as of 09:10. Osram Licht surged 12% after Wirtschaftswoche reported that Shanghai-listed San’An Optoelectronics plans to make a €70 per share offer by mid-October for a stake in the German lighting business.
The MSCI Asia Pacific Index added 0.5% with a measure of energy stocks surging 2%, the best performance among 10 industry groups.
“The oil price increase outweighs concerns about a Fed hike at the moment," said Jingyi Pan, a Singapore-based strategist at IG Asia. "For emerging markets, volatility will rise occasionally, as shown yesterday when we had some taper tantrum.”
Japan’s Topix index gained 0.5% as the yen’s slide boosted exporters such as Toyota, which rallied for a fourth day. Hong Kong’s Hang Seng Index advanced to its highest level in almost four weeks, while markets in China remained closed for a week-long holiday.
Samsung Electronics jumped to an all-time high in Seoul after the world’s largest smartphone maker was urged by activist investor Elliott Management to restructure its business into two units.
Sompo surged by the most since February in Tokyo after the insurer said it agreed to buy New York-listed Endurance Specialty for about $6.3bn. Fujitsu climbed more than 5%after the company was reported to be in talks to sell a majority stake in its personal-computer business to Lenovo, which advanced 2.1% in Hong Kong.
S&P 500 Index futures were little changed, after the US benchmark gained 0.4% in the last session. Shares of Twitter slid more than 10% in extended trading on Wednesday after Recode reported that Alphabet’s Google isn’t interested in buying the social-networking service.
Currencies
The yen slipped 0.1% to ¥103.59/$, extending its longest losing streak since July 2014, and Australia’s dollar was the worst performer among major currencies with a 0.5% drop. The Bloomberg Dollar Spot Index climbed to its highest level in almost three weeks after the chance of a Fed rate rise in 2016 increased to 62% in the futures market on Wednesday, from 54% a week earlier.
“We’ve seen the implied probability of a Fed hike in December increase in the past week and that has pushed Treasury yields up,” said Chris Weston, chief markets strategist at IG in Melbourne. “A continued steepening in the U.S. yield curve would mean the dollar will sustain its upside.”
The yuan was little changed at 6.6972 a dollar in offshore trading, after earlier weakening beyond 6.70 - a level seen as a red line for China’s central bank - for the first time in three weeks.
Bonds
The yield on Australian bonds due in a decade rose four basis points to 2.17%, extending this week’s surge to 21 basis points. Similar-maturity US Treasuries fell for a fifth day, lifting their yield to a two-week high of 1.71%. A Bloomberg index of developed-market sovereign debt ended Wednesday at the lowest level since July.
“The bearish price action that has been in place since last Friday remains well entrenched, and we see little reason to suggest the move has fully run its course” in Treasuries, Ian Lyngen, a New York-based independent analyst who was voted among the top strategists for 2016 in an Institutional Investor poll in July, wrote in a report.
From the ECB, “any nod to the taper potential will surely be bearish” for global bonds and risk assets, he said.
The yield on Germany’s 10-year sovereign bonds was little changed at minus 0.01%, after rising 11 basis points over the last three days.
Commodities
Crude oil declined 0.5% to $49.56 a barrel in New York, after advancing 2.3% to a three-month high on Wednesday. US stockpiles fell below 500 million barrels last week for the first time since January, official data show. The oil rally will stall at $55 a barrel as American shale drillers get back to work, according to Goldman Sachs.
“There is a bit of a cap for oil at about $50 because above that level, once we head up toward $55 a barrel, there’s concerns that US shale producers will jump back into action,” said Michael McCarthy, chief market strategist in Sydney at CMC Markets. “The draw in crude stockpiles is clearly one of the factors contributing to the positive momentum.”
Gold fell 0.2%, extending its longest losing streak since May. Nickel gained for the first time this week in London as investors assess a Philippines mining audit that could prompt shutdowns in the world’s biggest supplier, and news that Indonesia may resume some sales of nickel ore.
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