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Asian Equities Rally Loses Steam With Oil Near $45

Financial_Markets

The rally that drove Asian stocks to levels last seen in April lost momentum as investors await details of Japan’s stimulus plans and the corporate earnings season begins in earnest. The pound strengthened before a forecast cut in U.K. interest rates.

The MSCI Asia Pacific Index was set for its smallest gain this week, after rallies in U.S. and European shares stalled in the last session. The Topix index rose in Tokyo and the yen weakened against all 31 major peers amid speculation Japan could resort to so-called helicopter money, which involves the central bank directly funding government spending. South Korea’s won rose after a monetary policy review, while New Zealand’s dropped. Oil rebounded from a two-month low and gold fell.

Japan’s stocks have led gains in Asian equities this week and the yen slumped after Prime Minister Shinzo Abe promised a package of fiscal stimulus. Former Federal Reserve chief Ben S. Bernanke met Japanese leaders in Tokyo this week, having previously floated the idea of helicopter money during discussions in Washington with one of Abe’s key advisers. Shares in the U.S. are at an all-time high and investors will be looking to see whether better-than-expected economic data have helped arrest a slide in the earnings of America’s biggest companies.

“Investors remain very skittish and it won’t take much to rattle sentiment,” said James Audiss, a senior investment adviser at Shaw and Partners in Sydney, which manages about $7.4 billion. “We’re watching the yen-dollar rate really closely.”

South Korea’s central bank left interest rates unchanged at a record low, as forecast by all 20 economists in a Bloomberg survey, and lowered its projections for economic growth and inflation. Singapore’s expansion quickened to an annualized 0.8 percent in the second quarter, from 0.2 percent in the prior three months, data showed. JPMorgan Chase & Co. and BlackRock Inc. are among U.S. firms due to announce results.

Stocks

The MSCI Asia Pacific Index was up less than 0.1 percent as of 7:23 a.m. in London, after advancing 3.6 percent over the last three sessions. The Topix gained 0.8 percent, headed for its highest close in a month.

Etsuro Honda, an adviser to Abe, said Bernanke met him in April and warned there was a risk Japan at any time could return to deflation. Bernanke noted that helicopter money — in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them — could work as the strongest tool to overcome deflation, according to Honda.

Singapore’s benchmark was down 0.1 percent. Trading in Southeast Asia’s largest stock market was halted at 11:38 a.m. local time owing to a technical fault and missed a self-imposed target of 2 p.m. for the market to re-open.

The Shanghai Composite Index retreated 0.6 percent from a three-month high as a technical gauge indicated Chinese shares were overbought for the first time since the height of a stock-market bubble in June 2015. The index has risen 15 percent since reaching this year’s low in January and its relative strength index exceeded 70 at Wednesday’s close, signaling to some investors a reversal was likely.

“As it edges up, the market is running into greater and greater resistance,” said Shen Zhengyang, a strategist at Northeast Securities Co. in Shanghai. “China is unlikely to further boost money supply even if global central banks start a new round of easing, while the Chinese economy is not improving in the near term.”

Nintendo Co. jumped 16 percent to a five-year high, boosted by the success of its Pokemon Go mobile game. China Steel Corp. surged in Taipei by the most since October before the company announces its product prices for September. Hyundai Motor Co. fell as much as 3.3 percent in Seoul after workers in South Korea voted to strike over wages and working conditions. Taiwan Semiconductor Manufacturing Co. was up 0.3 percent before the company posted better-than-expected earnings.

Futures on the Euro Stoxx 50 Index gained 0.4 percent, as did contracts on the S&P 500 Index. A Citigroup Inc. gauge that tracks the degree to which U.S. economic data are exceeding economists’ projections has climbed to the highest level since January 2015. Analysts predict second-quarter profits will drop 5.7 percent at S&P 500 firms, which would make it the fifth straight quarterly decline, the longest streak since 2009.

Currencies

The Japanese yen was down 1.2 percent versus the dollar, after earlier strengthening as much as 0.5 percent. Koichi Hamada, a key economic adviser to Abe, said Wednesday that boosting fiscal and monetary stimulus at the same time would be a good strategy, though helicopter money would be a “very risky gamble.”

The pound was 0.9 percent stronger, after earlier weakening as much as 0.3 percent. Thirty of 54 economists surveyed by Bloomberg predict the Bank of England will lower its benchmark interest rate on Thursday, with a majority of those seeing a 25 basis-point reduction to 0.25 percent.

South Korea’s won rose as much as 0.8 percent to a two-month high. The Bank of Korea

lowered its economic growth forecast for this year to 2.7 percent, from an April projection of 2.8 percent, and trimmed its inflation estimate to 1.1 percent from 1.2 percent. The revisions were more modest than anticipated and suggest there’s no urgent need for borrowing costs to be cut, said Hong Sup Shin, head of fixed-income at Truston Asset Management in Seoul.

The kiwi fell 0.7 percent after the Reserve Bank of New Zealand said it will issue an unscheduled assessment of the economy next week, prompting traders to increase bets on an interest-rate cut in August. The odds of a quarter-point reduction at the next policy review on Aug. 11 rose to more than 60 percent from 40 percent, derivatives show.

Commodities

West Texas Intermediate crude oil was up 1.4 percent at $45.35 a barrel, after tumbling 4.4 percent on Wednesday as U.S. data showed an unexpected increase in gasoline inventories.

“Every time we have seen these big pullbacks, there is quite a lot of strong buying around that $44, $45 level,” said Angus Nicholson, a markets analyst in Melbourne at IG Ltd. “There are definitely active participants in the market who are very happy to be picking up oil at that price.”

Gold declined 0.8 percent to $1,332 an ounce, after advancing 0.7 percent in the last session. It was trading at about $1,260 before Britain’s June 23 vote to leave the European Union.

Corn advanced 0.8 percent in Chicago, climbing for a third day as forecasts for hot and dry weather in the U.S. Midwest raise concern crop yields will deteriorate.

Bonds

Australian government bonds gained, with yields on notes due in a decade falling two basis points to 1.96 percent. Similar-maturity U.S. Treasuries yielded 1.50 percent, up two basis points from Wednesday’s close.

Source: Bloomberg