Asian Stocks Rise Toward 2016 High; Pound climbs

Asian stocks rose toward their high for the year and copper gained amid optimism stimulus will be unleashed in some of the world’s leading economies. The pound strengthened before Theresa May takes over as the U.K.’s prime minister, while European equity index futures retreated.

The MSCI Asia Pacific Index rallied for a third day after global shares returned to levels seen before the U.K.’s June 23 vote to leave the European Union. Japan’s stocks led the gains as the government prepares measures to revive the world’s third-largest economy. The yen rose following its steepest two-day slide since 2014, while the pound advanced for a fourth day. Copper led industrial metals higher as iron ore climbed. Oil retreated after its biggest jump in three months, while Australian bonds fell for a fifth day.

Stocks globally have regained the almost $4 trillion in value that was obliterated in the days following the Brexit vote as investors bet officials in the world’s major economies will stem any fallout from the decision. Economists expect the Bank of England to cut interest rates on Thursday, while Japanese Prime Minister Shinzo Abe has ordered up more fiscal stimulus. Federal Reserve Bank of St. Louis President James Bullard said Tuesday he expects the U.K.’s EU decision to have near-zero impact on the U.S., where traders are pricing in less than 50 percent odds of an interest-rate hike this year.

“We could see more monetary stimulus and quantitative easing that will help boost global growth,” Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said in Manila. “The party goes on but it is prudent for investors to re-balance their portfolios by taking some money out.”

China is due to report June trade figures on Wednesday, after Premier Li Keqiang said its economy maintained steady growth momentum in the second quarter and can achieve the annual target of at least 6.5 percent. Industrial output data for the euro area is also coming, while central banks in Canada and Malaysia are forecast to leave interest rates unchanged at scheduled policy reviews.

Stocks

The MSCI Asia Pacific Index climbed 0.8 percent as of 7:10 a.m. London time, putting it about 1 percent shy of its highest close this year.

Japan’s Topix index gained 1.1 percent, building on a 6.3 percent jump over the last two sessions. Abe has ordered his economy minister to compile stimulus measures this month, while the Sankei newspaper reported government officials are considering “helicopter money” as a policy option. The Topix pared its advance after Chief Cabinet Secretary Yoshihide Suga said such a policy, which involves the central bank directly financing government spending, was not being looked at.

Posco jumped 6.8 percent in Seoul as increases in Chinese steel prices brightened prospects for South Korea’s largest producer. Yamaha Motor Co.jumped about 10 percent in Tokyo after the Japanese maker of motorcycles and boat engines was chosen to replace Sharp Corp. in the Nikkei 225 Stock Average. Sharp dropped 5.5 percent.

Futures on the Euro Stoxx 50 Index and the the U.K.’s FTSE 100 Index both declined 0.4 percent. S&P 500 Index contracts fell 0.1 percent, after the benchmark ended the last session at a record high. Analysts predict S&P 500 members will report a fifth straight quarter of shrinking profits, with BlackRock Inc., JPMorgan Chase & Co. and Citigroup Inc. among companies set to release results this week.

Currencies

The yen strengthened 0.4 percent to 104.30 per dollar, after sliding more than 4 percent over the last two days.

The pound climbed 0.4 percent, set for the longest run of gains since May. British Prime Minister David Cameron will face questions in parliament for the last time as premier at noon in London before traveling to Buckingham Palace during the afternoon to inform Queen Elizabeth II of his resignation. The Queen will then ask Theresa May to form a government.

New Zealand’s dollar retreated from a one-year high and Australia’s currency fell from near its strongest level in two months before Chinese trade data that’s forecast to show slides in both exports and imports for June. The two countries count China as their No. 1 export market.

The yuan strengthened 0.12 percent to 6.6887 per dollar in offshore trading, extending its rebound from a six-month low of 6.7084 reached on Friday. The gains prompted speculation China’s central bank is limiting the supply of the currency in Hong Kong to deter bets on depreciation, as it did in January to halt the yuan’s slide to a five-year low. The currency’s overnight interbank rate in Hong Kong more than doubled to 4.83 percent, the highest since February.

“It feels like the People’s Bank of China is quite serious about defending the 6.7 level," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "This reminds me of what happened in January.”

Commodities

Crude oil fell 1.1 percent to $46.31 a barrel, after jumping 4.6 percent on Tuesday. U.S. industry data showed the nation’s stockpiles increased by 2.2 million barrels last week, adding to concerns about oversupply. Government figures on Wednesday are forecast to show supplies slid.

Copper climbed 2 percent in London, building on a 3.9 percent advance over the last three trading days. Nickel retreated from an eight-month high and zinc was headed for its best close since May 2015.

Iron ore rose to the highest level since April on the Dalian Commodity Exchange as steel rebar traded near a 10-week high in Shanghai. Macquarie Group Ltd. said it is skeptical that the rally will be sustained as more supply is on the way just as steel production is set to moderate.

Cotton jumped as much as 5 percent to a two-year high in China after the U.S. Department of Agriculture cut its projections for world output and stockpiles by more than analysts forecast. Rubber surged by more than 3 percent in Tokyo, supported by supply concerns as rains disrupt production in Thailand.

Bonds

Australian sovereign debt fell for a fifth day, with yields on 10-year bonds rising four basis points to 1.99 percent. Yields on similar-maturity debt in Hong Kong and New Zealand rose at least three basis points. Japan’s rate was little changed at minus 0.28 percent, near the record of minus 0.30 percent reached on Friday.

Yields on Treasuries due in a decade took a breather, falling two basis points to 1.49 percent. The rate, which sank to an unprecedented 1.32 percent a week ago, surged 15 basis points over the last two sessions as demand at auctions of three- and 10-year weakened to levels last seen in 2009. Investors who rushed into bonds last week will face a hard time making money as the market finds a bottom and rates begin to rebound, according to Jeffrey Gundlach, chief executive officer of DoubleLine Capital.

“There’s something of a mass psychosis going on related to the so-called starvation for yield,” Gundlach, whose firm manages $102 billion, said during a webcast Tuesday. “Call me old-fashioned, but I don’t like investments where if you’re right you don’t make any money.”

Pacific Investment Management Co.’s Total Return Fund — the world’s biggest actively run bond fund with $86.4 billion in assets — increased its holdings of U.S. government and related debt in June to the highest level since 2014.

Source: Bloomberg