Asian Stocks Advance, Dollar Struggles

Asian stocks progressed on Thursday, following a surge on U.S. stocks, after the chairman of the U.S. Federal Reserve suggested it might be nearing an end to its three-year rate tightening cycle, boosting interest in riskier assets.

Global currencies with asian stocks market chart graph.

The dollar struggled  and U.S. Treasury yields plunged after Jerome Powell said on Wednesday that U.S. policy rates were “just below” neutral, less than two months after saying rates were most likely “a long way” from that point.

MSCI’s widest index of Asia-Pacific shares outside Japan increased 0.8 percent.

The Shanghai Composite Index bordered up 0.2 percent, Australian stocks increased 0.5 percent, and Japan’s Nikkei climbed 0.9 percent.

Nonetheless, improvements in Asia were tempered by investor jitters in front of high-stakes trade talks between U.S. President Donald Trump and his Chinese counterpart Xi Jinping on Saturday on the sidelines of the G20 summit in Argentina.

Economists at ANZ pointed out that policy hawks in the Trump government who want Washington to take a tough stance against Beijing appear to be in the dominance.

“They will want some concessions from China, not least of all on what they perceive is theft of intellectual property and forced technology transfer,” wrote the ANZ economists.

“Thus, it would seem the prospect of the Trump-Xi meeting ending without a sustainable resolution to their differences is relatively high.”

Analysts believe any signs of a defrost in U.S.-China tensions could trigger an automatic rally but say the move would probably be short lived unless there are substantive compromise from both sides — most especially if Xi can persuade Trump to suspend a sharp tariff hike on Chinese goods set to take effect Jan. 1.

The Dow in the meantime rallied 2.5 percent and Nasdaq gained almost 3 percent as Powell’s remarks facilitated fears of a quicker pace of rate climbs in 2019.

“Equities gained as Powell hinted of implementing fewer rate hikes when the economy is still doing well,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

“The likelihood of slower U.S. monetary tightening caused the dollar to slump against currencies, particularly the euro, which could soon benefit from an ECB rate hike.”

The euro was a shade higher at $1.1374 after advancing 0.7 percent the previous day.

The dollar plunged 0.2 percent to 113.46 yen after being knocked down from a two-week high above 114.00 scaled overnight.

The Australian dollar, sensitive to shifts in wider risk sentiment, jumped over 1 percent and last stood minimal changed at 0.7302 .

The dollar index against a basket of six major currencies was effectively flat at 96.805 following an overnight loss of 0.6 percent.

The U.S. two-year Treasury yield broadened a humble decline from the past day following Powell’s remarks. The yield was down about 1 basis point at 2.796 percent.

Oil prices clawed back some ground from losses in the past session, but a rise in U.S. crude inventories and doubt in the run to an OPEC meeting next week kept markets under pressure.

U.S. crude futures were up 0.8 percent at $50.66 per barrel after slipping 2.5 percent the earlier day.

Brent crude increased 0.6 percent to $59.13. It has fell 21 percent this month, during which it tumbled to a 13-month trough of $58.41.

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