Asian shares near nine-month peak, dollar shines

Asian shares held near nine-month highs on Monday as worries over the impact of Britain’s Brexit vote eased, while the dollar was buoyed by a run of solid U.S. economic data.

Policymakers from the Group of 20 countries agreed at the weekend to work to support global growth and better share the benefits of trade, in a weekend meeting dominated by the impact of Britain’s exit from Europe and fears of rising protectionism.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was flat, sitting 0.5 percent below its nine-month peak hit on Thursday.

Japan’s Nikkei .N225 rose 0.4 percent. The Bank of Japan is widely expected to ease policy further at a policy review ending on Friday while Japanese Prime Minister Shinzo Abe has ordered fiscal stimulus.
‘Markets are calming down after the initial shock from Brexit,’ said Masayuki Kichikawa, chief strategist at Sumitomo Mitsui Asset Management.

Following Brexit, investors expect more stimulus from central banks in coming months. As European and Japanese bond yields have plunged deeper into negative territory, investors are rushing to U.S assets, where bond yields are higher and the economic prospects look better.

U.S. stock prices marked four straight weeks of gains last week, with the S&P 500 .SPX setting record highs, supported by renewed strength in the tech and telecom sectors and a stronger-than-expected report on manufacturing.

‘At the moment, U.S. markets are attracting global funds. Globally there remain risks, such as European financial institutions or the Chinese yuan,’ said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank in Tokyo.

‘We have to see if investors are ready to diversify to other markets than the U.S. in coming weeks,’ he added.

The strength of U.S. economic data in recent weeks has revived speculation that the Federal Reserve may raise interest rates around the end of year.

Though the Fed is expected to keep policy unchanged at a two-day meeting starting on Tuesday, investors will be closely parsing its statement for clues on policy direction.

Dollar interest rates futures, which had priced out any chance of a rate hike this year in the days that followed the UK referendum, are now pricing in about a 40 percent chance of a 0.25 percentage point increase by the end of year.

That is boosting the relative attraction of the dollar in the currency market. The dollar’s index against a basket of six major currencies .DXY =USD hit a 4-1/2-month high of 97.543 on Friday and stood at 97.443 in early Monday trade.

As the dollar gains, the euro EUR= has been put on back foot, trading at $1.0965. The single currency hit a one-month low of $1.09555 on Friday.

The British pound GBP=D4 is also under pressure after surveys showed on Friday business activity had wilted in the wake of the Brexit vote, trading at $1.3141, near last week’s low of $1.3065. The yen traded at 106.46 per dollar JPY=, off last week’s six-week low of 107.49.

The yen showed limited response to comments from Bank of Japan Governor Haruhiko Kuroda on the sidelines of the G20 meeting.

Kuroda said he would ease policy further if necessary to achieve its 2 percent inflation goal, but also said there was no discussion on ‘helicopter money’ - a radical policy of expanding fiscal stimulus financed by printing money.

Oil prices hovered near 2-1/2-month lows after having lost about 4 percent last week on renewed worries about a global crude glut.

Brent crude futures LCOc1 traded at $45.61 per barrel, down 0.2 percent and near Friday’s low of $45.17, its lowest since May 11.