Asian shares rise as U.S. rate cut fever lingers, oil holds gains

Economy MARKET_WATCH

Asian shares tracked Wall Street higher on Wednesday as U.S. rate cut fever lingered, while oil held on to gains from the past two days after Houthi militants' attacks on ships in the Red Sea disrupted maritime trade.

The yen nursed losses near a one-week trough and Japanese yields extended declines after the Bank of Japan held policy steady and gave no sign of when it might end negative interest rates, further aiding risk appetite.

Europe is set to open higher, with EUROSTOXX 50 futures up 0.3% and FTSE futures gaining 0.3%. S&P 500 futures and Nasdaq futures were both up 0.1%.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8% to a fresh four-month peak, helped by a gain of 1.1% in Hong Kong stocks and a jump of 1.6% in South Korea.

Chinese shares were an outlier, with blue chips falling 0.5% after the central bank left unchanged its benchmark lending rates, as widely expected.

Japan's Nikkei rose 1.7%, edging closer to a 33-year high. The yen was pinned at 143.66 to the dollar, after an overnight drop of 0.8% and benchmark ten-year yields fell another 7.5 basis points to 0.56%, the lowest since early August.

Overnight on Wall Street, the Dow Jones rose 0.7%, for another all-time closing high, and the Nasdaq Composite added 0.7% to reach its highest since January. The S&P 500 gained 0.6%.

The rally was fuelled by an unexpectedly dovish tone from U.S. Federal Reserve Chair Jerome Powell last Wednesday on rate cut prospects next year, with the stock market having paid little attention to subsequent pushback by other Fed officials.

On Tuesday, Richmond Fed President Thomas Barkin welcomed the retreat in inflation but refrained from saying how that affected his policy outlook for next year. Atlanta Federal Reserve President Raphael Bostic said there was no urgency to cut rates.

Analysts at JPMorgan expect a more challenging macro backdrop for share markets next year as a recent disinflationary trend should become a major headwind for corporate margins, adding that they favour cash and bonds.

"It has become consensus that a recession will be avoided, while equity multiples appear rich, credit spreads are tight, and volatility is unusually low," they told clients in a note.

"Thus, even in an optimistic scenario, we believe upside is limited for risky assets."

On Tuesday, a BofA fund manager survey showed investors turned more bullish in December, buying stocks and cutting cash holdings. They had the biggest overweight position in bonds since 2009.

Falling yields also propped up equity valuations. Benchmark 10-year yields slipped 1 basis point to 3.9125%, just above their five-month low of 3.8850%, while two-year yields eased 2 bps to 4.4219%, nearing a seven-month trough of $4.2820.

Elsewhere, oil prices were gripped by worries about disruptions in the Red Sea after Yemen's Iran-aligned Houthi militants stepped up attacks on commercial ships. The U.S. said it was setting up a task force to safeguard commerce there.

U.S. crude futures were little changed at $73.98 a barrel, after rising more than 1% on Tuesday, while Brent was flat at $79.20 a barrel.

Norway's krone gained 1.2% overnight to 10.272 per dollar, its highest since mid-August. Commodity currencies such as the Australian dollar outperformed, with the Aussie hitting a fresh five-month top of $0.6773 on Wednesday.

S&P Global Market Intelligence expects that it is likely all three major shipping alliances will halt services covering up to 85% of all container fleet crossings of the Suez Canal.

"A reduction in commodity product crossings of Suez may drive a bifurcation in oil, refined oil and other commodities between Asian and Atlantic basin markets, and potentially more volatility in prices," said Chris Rogers (NYSE:ROG), head of supply chain research at S&P.

Spot gold was flat at $2,039.70 an ounce.

Source : Economy News by Reuters / Dec 20, 2023

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