Tuesday 24 October 2017

Asia stocks bounce, bonds benefit from the unknown

Lack of performance a global issue for investors in actively-managed equity funds. Photo: Bloomberg
Lack of performance a global issue for investors in actively-managed equity funds. Photo: Bloomberg

Asian shares were swept up in a global relief rally on Wednesday as the immediate drag from the Brexit vote began to ebb and investors wagered central banks would ultimately ride to the rescue with more stimulus measures.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 1.0pc to recoup around one-third of Friday's stinging loss. Japan's Nikkei .N225 climbed 1.6pc, while Australian stocks added 0.8pc.

In Europe, both the FTSE and DAX were seen starting around 1pc higher, with the CAC up 1.2pc. EMINI futures for the S&P 500 ESc1 added 0.2pc.

Any bounce was welcome, given global equity markets shed $3 trillion in value in the two days following Britain's shock vote, according to S&P Dow Jones Indices. Investors also pointed to solid U.S. economic data as helping to steady the ship.

Yet Britain's course out of the EU remains unknown, leaving the future of the entire bloc and its currency an open question.

"The only certainty in Europe is uncertainty," analysts at ANZ said in a note.

"European leaders appear to want to move forward with Brexit plans as quickly as possible, but political turmoil within Britain suggests a quick turnaround is unlikely," they wrote.

The unease was evident in sterling, which slipped a third of a U.S. cent over the session to huddle at $1.3332 GBP=, not far from the recent 31-year low of $1.3122.

The euro regained only a little ground to $1.1064 EUR=, while the safe-haven yen steadied at 102.33 per dollar JPY=.

For now, investors are counting on central banks to step in with fresh stimulus to support markets over time.

Japanese Prime Minister Shinzo Abe urged the Bank of Japan to provide ample funds to ensure market liquidity.

In the first of Federal Reserve policymakers to comment since the vote, Governor Jerome Powell said it had shifted global risks "to the downside".

That only reinforced market expectations the Fed will no longer be able to hike U.S. rates this year, and could even be forced to cut if the domestic economy falters.


On Wall Street, the Dow .DJI ended Tuesday up 1.57pc, while the S&P 500 .SPX gained 1.78pc and the Nasdaq .IXIC 2.12pc. Badly beaten financials .SPSY and tech stocks .SPLRCT were among the top gaining sectors.

The calmer mood was reflected in the CBOE Volatility Index .VIX which fell about 21pc on Tuesday to near where it was before the vote. It was its largest one-day percentage decline since August 2011.

Aiding sentiment was data showing the U.S. economy grew at a 1.1pc annualised rate in the first quarter, rather than the 0.8pc pace reported last month.

Yet concerns about the impact of Brexit on global growth, plus all the talk central banks might have to ease anew to offset it, kept sovereign bonds well supported.

Yields on U.S. 10-year notes US10YT=RR held at 1.47pc, just above a near four-year low of 1.406pc hit on Friday. Comparable German DE10YT=RR and Japanese bonds JP10YT=RR are into record territory and pay negative yields.

Indeed, all Japanese bonds out to 40 years now offer less than 0.1pc, a nightmare for pension funds and insurers desperate for a "decent" return.

In commodity markets, gold was firmer XAU= around $1,319.00 an ounce, off a low of $1,305.23 touched Tuesday.

Oil prices gained as a looming strike by Norwegian oil and gas field workers threatened to cut output. There were also reports oil producers and refiners in crisis-struck Venezuela were struggling to keep output up.

U.S. crude oil futures CLc1 were up 27 cents at $48.12, while Brent crude LCOc1 rose 21 cents to $48.79.


Also in Business