Asian Stocks, Dollar Stay Close to Recent Peaks

TOKYO (Reuters) -
A man standing in front of an electronic board showing the stock market indices of various countries is seen between pedestrians outside a brokerage in Tokyo, Japan. (REUTERS/Yuya Shino)
A man standing in front of an electronic board showing the stock market indices of various countries is seen between pedestrians outside a brokerage in Tokyo, Japan. (Reuters/Yuya Shino)

Asian stocks held near-nine-month highs on Monday as assurance from policymakers on the need to boost growth quelled worries over the impact of Britain’s Brexit vote while the dollar, buoyed by solid U.S. economic data, stayed firm.

Policymakers from the Group of 20 countries agreed at the weekend to work to support global growth and better share the benefits of trade, in a meeting dominated by the impact of Britain’s exit from Europe and fears of rising protectionism.

European shares are expected to rise, with spread-betters looking to gains of up to 0.3 percent in Germany’s DAX and France’s CAC and a 0.1 percent rise for Britain’s FTSE.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, sitting just 0.3 percent below a nine-month peak hit on Thursday.

Japan’s Nikkei was flat. The Bank of Japan is widely expected to ease policy further at a policy review ending on Friday while Japanese Prime Minister Shinzo Abe has ordered fiscal stimulus.

“Markets are calming down after the initial shock from Brexit,” said Masayuki Kichikawa, chief strategist at Sumitomo Mitsui Asset Management.

Following Brexit, investors expect more stimulus from central banks in coming months.

As European and Japanese bond yields have plunged deeper into negative territory, investors are rushing to U.S assets, where bond yields are higher and the economic prospects look better.

U.S. stock prices marked four straight weeks of gains last week, with the S&P 500 setting record highs, supported by renewed strength in the tech and telecom sectors and a stronger-than-expected report on manufacturing.

“At the moment, U.S. markets are attracting global funds. Globally, there remain risks, such as European financial institutions or the Chinese yuan,” said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank in Tokyo.

“We have to see if investors are ready to diversify to other markets than the U.S. in coming weeks,” he added.

The strength of U.S. economic data in recent weeks has revived speculation that the Federal Reserve may raise interest rates around the end of year.

Though the Fed is expected to keep policy unchanged at a two-day meeting starting on Tuesday, investors will be parsing its statement for clues on policy direction.

Dollar interest rates futures, which had priced out any chance of a rate hike this year in the days that followed the U.K. referendum, are now pricing in about a 40 percent chance of a 0.25 percentage point increase by the end of the year. That is boosting the relative attraction of the dollar in the currency market.

The dollar’s index against a basket of six major currencies hit a 4½-month high of 97.543 on Friday and stood at 97.443 in early Monday trade.

As the dollar gains, the euro has been put on the back foot, trading at $1.0965. The single currency hit a one-month low of $1.09555 on Friday.

The British pound is also under pressure after surveys on Friday showed business activity had wilted in the wake of the Brexit vote, trading at $1.3141, near last week’s low of $1.3065.

The yen traded at 106.46 per dollar, off last week’s six-week low of 107.49. The yen showed limited response to comments from Bank of Japan Governor Haruhiko Kuroda on the sidelines of the G20 meeting.

Kuroda said he would ease policy further if necessary to achieve its 2 percent inflation goal, but also said there was no discussion on “helicopter money” – a radical policy of expanding fiscal stimulus financed by printing money.

Oil prices hovered near 2½-month lows after having lost about 4 percent last week on renewed worries about a global crude glut.

Brent crude futures traded at $45.66 per barrel, down 0.1 percent and near Friday’s low of $45.17, its lowest since May 11.