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Asian Shares Rebound as Brexit Risk Abates

Markets.3

Asian stocks rose with European equity index futures and the pound strengthened after the murder of a U.K. lawmaker prompted speculation Britons will be less inclined to vote to leave the European Union. Sovereign bonds fell as demand for haven assets cooled.

The MSCI Asia Pacific Index rebounded from a three-week low, led by gains in Japan as comments by Finance Minister Taro Aso helped check the yen’s appreciation. The euro climbed with sterling after bookmakers’ odds indicated a reduced chance that the U.K. will leave the EU following a June 23 referendum. The currencies of commodity-exporting nations strengthened as U.S. crude snapped a six-day losing streak and industrial metals rallied. Japan’s 10-year bonds declined for the first time in more than a week.

Anxiety stemming from a so-called Brexit curbed demand for riskier assets over the past week or so, wiping more than $2 trillion from the value of global stocks and sending bond yields to record lows in the U.K., Germany and Japan. Campaigning for the referendum was halted through Friday following the killing of Jo Cox, a member of Parliament who was a proponent of Britain remaining in the EU.

“Positioning was very stretched yesterday with the markets short risk currencies like sterling and long safe havens like bonds and the yen,” said Mansoor Mohi-uddin, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “Last night’s tragic news in the U.K., plus Finance Minister Aso’s warnings this morning, have caused positions to be unwound, leading to a wider bounce in the euro and the commodity currencies.”

Concern over the U.K. vote was heightened over the past week by a slew of polls showing Britons favor leaving the EU, an outcome the “Remain” camp warns would be catastrophic for the country’s economy. Federal Reserve Chair Janet Yellen cited the referendum as a factor in the central bank’s decision to keep interest rates on hold Wednesday. The Bank of England on Thursday warned a Brexit vote could hurt global markets and the world economy, while the head of Thailand’s central bank said Friday he expects currency volatility to increase ahead of the referendum.

Stocks

Futures on the Euro Stoxx 50 Index rallied 1 percent as of 7:15 a.m. London time, while contracts on the U.K.’s FTSE 100 Index gained 0.5 percent.

The MSCI Asia Pacific Index rose 0.5 percent, trimming this week’s loss to 3 percent. Hong Kong’s Hang Seng Index added 0.6 percent and Japan’s Topix climbed 0.8 percent, rebounding from a four-month low.

“The dollar-yen market has calmed somewhat,” said Shunichi Otsuka, general manager of research and strategy at Ichiyoshi Securities Co. in Tokyo. “The fact that U.S. shares have risen is also a tailwind for Japanese equities.”

Futures on the S&P 500 Index was little changed, after the benchmark snapped a five-day losing streak on Thursday. Data on Friday are forecast to show U.S. housing starts declined in May after surging a month earlier.

Currencies

The yen was little changed at 104.32 per dollar, after earlier weakening as much as 0.6 percent. Finance Minister Aso told reporters Friday that he was very concerned about one-sided, abrupt and speculative currency movements, speaking after the currency jumped 1.7 percent in the last session as the Bank of Japan refrained from expanding its record monetary stimulus. The yen climbed as high as 103.55 on Thursday, the strongest level in almost two years.

“With Brexit risks an important driver of currencies in the near term, dollar-yen can track lower next week,” said Joseph Capurso, a senior currency strategist in Sydney at Commonwealth Bank of Australia. “That raises the risk the Ministry of Finance may intervene to stem the recent rapid gains in the yen.”

The pound strengthened 0.4 percent, after erasing a slump of more than 1.3 percent in the last session following Cox’s murder. Odds on the U.K. leaving the EU slid to 38 percent after hitting a record 44 percent on Thursday, according to Oddschecker calculations based on bookmakers’ quotes.

“The rally is being entirely attributed to the belief that yesterday’s tragedy has increased the likelihood of the ‘Remain’ side holding sway in next week’s referendum,” said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd. in Sydney.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slipped 0.1 percent in a third day of losses as the currencies of Canada, Australia and Norway climbed 0.3 percent or more, rallying with metals and crude.

Commodities

West Texas Intermediate crude climbed 1 percent to $46.65 a barrel, paring its drop for the week to about 5 percent, still its steepest loss in more than two months. There’s no need for Russia and Saudi Arabia to cooperate on influencing crude markets now and low prices may persist for 10 to 15 years, Russian Oil Minister Alexander Novak said in a Bloomberg television interview.

Copper climbed 1 percent in London, extending its weekly advance to 1.6 percent. Aluminum gained 0.8 percent and zinc rose 1.3 percent.

Gold for immediate delivery advanced 0.4 percent, after falling on Thursday for the first time in seven days.

Palm oil futures climbed as much as 1 percent in Kuala Lumpur as a nine-day slump, the worst in a decade, boosted demand. Corn futures in Chicago advanced 0.8 percent, set for a sixth weekly gain amid concern hot weather may hurt crops in the U.S.

Bonds

U.S. Treasuries due in a decade fell, lifting their yield by two basis points to 1.60 percent. It touched 1.52 percent in the last session, the lowest intraday level since August 2012, after the Fed on Wednesday lowered its projections for the path of policy tightening.

“Our view is that the Fed will keep its policy rate as it is all this year and the next as well, meaning further declines in yields and an even flatter curve,” said Tomohisa Fujiki, the chief rate strategist at BNP Paribas SA in Tokyo. “Brexit is one of the risks, but the underlying problem is that global growth is not picking up.”

Japan’s 10-year bonds fell for the first time in seven days, lifting their yield by five basis points to minus 0.15 percent. It sank to a record minus 0.21 percent in the last session as the BOJ said inflation in the nation may be zero or negative. The rate on similar-maturity bonds in Australia climbed eight basis points to 2.09 percent, after slipping below 2 percent for the first time on Thursday.

Source: Bloomberg