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Asia advances, bond yields resume climb

Bonds Interest Rates

Asian stocks advanced on Friday as the Thanksgiving break in the United States helped slow a relentless surge in the dollar that has sucked capital out of most emerging markets.

European markets, however, are poised for a more lacklustre start, with financial spread-better CMC Markets expecting Britain’s FTSE 100 to open 0.1% lower, and Germany’s DAX and France’s CAC 40 to be flat.

The respite for Asian assets too may be short-lived, with US Treasury yields resuming their climb after the holiday as investors bet that President-elect Donald Trump will adopt policies that increase spending and debt, as well as spur higher growth and inflation.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.5%. It is set to end the week 1.7% higher, its biggest weekly gain in two months. But it remains down 2.7% from its close on Nov. 8 before Trump’s surprise election win. His protectionist campaign promises are widely seen as negative for the region.

Emerging market stocks have also broadly taken a hit, although the MSCI Emerging Markets index pared losses to 0.2% on Friday. While the index is up 1.2% for the week, it remains 5.3% below its Nov. 8 close.

The dollar index, which tracks the greenback against a basket of six major global peers, edged down 0.1% to 101.60 on Friday, down from its Thursday peak of 102.05, the highest level since March 2003. The US currency has been on a tear since Trump’s win, and strong US manufacturing and consumer data this week have bolstered the case for higher interest rates. The dollar index has risen 0.4% this week, and 3.8% since Nov. 8.

"The trend is likely to remain with the US Federal Reserve poised to strike in December and market positioning for US President-elect Trump to fulfil his fiscal and tax cut plans," Singapore-based UOB Group’s global economics and markets research team wrote in a note on Friday.

The expectations are triggering a dramatic surge in bond yields, which is pulling capital out of emerging markets. The two-year US Treasury yield jumped to a 6-1/2-year high of 1.17% on Friday. It was at 1.1506% as of 0540 GMT. The 10-year yield, which hit a 16-month high of 2.417% this week, was at 2.3915 on Friday.

The dollar’s pullback on Friday took some pressure off other currencies, which have been pummelled this month by its strength. After touching an eight-month high earlier in the session, the dollar was flat at 113.35 yen. Still, it is poised for a 2.2% jump this week.

The Nikkei, which earlier hit its highest level since January, edged back to close 0.26% above Thursday’s close as the dollar moderated. The index is on track for a weekly gain of 2.1%, and is up almost 6.9% since before the US election.

Analysts also expect Japanese consumer prices, which fell for their eighth straight month in October, to rebound as the weaker yen pushes up import costs.

The dollar’s retreat also helped the euro, which has been battered by the greenback’s recent surge and nervousness ahead of Italy’s constitutional referendum on Dec. 4. The common currency rose 0.2% to $1.057, after slumping to the lowest level since March 2015 against the dollar on Thursday. Its recovery pared losses for the week so far to 0.2%.

Wall Street was closed on Thursday for the Thanksgiving holiday and trading will end early on Friday.

European stocks ended on a positive note, with the Stoxx 600 index gaining 0.3% at the close. Chinese shares rose, with the blue chip CSI 300 index up about 0.4%. The Shanghai Composite reversed earlier losses to climb 0.1%. Hong Kong’s Hang Seng added 0.4%.

Oil prices slipped as investors awaited next week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) for clarity on proposed output caps, but remained on track for weekly gains.

"Consolidation ahead of major events are no surprise and we are expecting this with what could be reckoned as the most important event of the year for crude oil prices next week – the November 30 OPEC meeting," Jingyi Pan, market strategist at IG in Singapore, wrote in a note.

US crude futures slid 0.7% to $47.64 a barrel, but were set to clock a weekly increase of 4.3%, building on last week’s 5.3% jump. Global benchmark Brent crude pulled back 0.9% to $48.58, shrinking its gains for the week to 3.7%.

Gold remained under pressure, plunging to its lowest level since February. It retreated 0.4% to $1,179.7 an ounce on Friday, down 2.5% this week. It has plunged a whopping 7.6% since its close before the US election results were announced.

(Source: Reuters)