Asian Shares Shrug Off Energy Blues, Dollar Firms

TOKYO (Reuters) —
People look at an electronic stock board of a securities firm in Tokyo. (AP Photo/Koji Sasahara)

Asian shares rose on Tuesday, taking heart from record closes on Wall Street and upbeat economic data that lifted U.S. Treasury yields and the dollar, even as weaker oil prices took their toll on energy stocks.

Futures suggested a firm start to the European trading day, with the Eurostoxx 50 up 0.3 percent and FTSE futures up 0.1 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.4 percent higher in afternoon trade, clawing back losses from earlier in the Asian day.

Japan’s Nikkei stock index ended up 1.1 percent as a tailwind from a weaker yen helped power it to its highest levels since August 2015.

Markets in China and South Korea were closed for holidays.

Hong Kong’s Hang Seng index rose 1.9 percent as trading resumed following a public holiday on Monday, led by mainland banks and insurers after China’s central bank cut reserve ratios over the weekend to encourage lending. Materials shares also gained after Beijing reported stronger-than-expected September factory activity.

The Hong Kong China Enterprises Index rallied 3.2 percent.

Australian shares slipped 0.5 percent, pressured by financial and energy shares. The energy index, which has moved largely in tandem with the main index in recent sessions, skidded 1 percent in line with weaker crude prices.

As widely expected, the Reserve Bank of Australia kept interest rates on hold at a record low of 1.5 percent. The RBA said a stronger local currency would slow the economy and restrain price pressures.

The dollar index, which tracks the greenback against a basket of six major rivals, added 0.3 percent to 93.839, after nudging up to its highest levels since Aug. 17.

The euro eased 0.2 percent to $1.1709, facing pressure from Spain’s biggest constitutional crisis in decades, after Sunday’s violence-marred independence referendum in Catalonia opened the door for its wealthiest region to move for secession as early as this week.

The dollar added 0.3 percent against its Japanese counterpart to 113.11 yen, within sight of last week’s two-month high of 113.26 yen.

Proposed U.S. tax code changes as well as the possibility that U.S. President Donald Trump will appoint a more hawkish Fed Chair also gave the dollar a lift.

Crude oil futures extended losses after tumbling on Monday, as a rise in U.S. drilling and higher OPEC output put the brakes on their recent rally and rekindled concerns about oversupply.

Brent crude slipped 0.4 percent to $55.90 a barrel, after marking a third-quarter gain of about 20 percent. U.S. crude fell 0.3 percent to $50.42.

“The fourth quarter is not too kind to the price of oil, as we switch from summer demand to expectations of winter demand,” said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney.

On Wall Street on Monday, U.S. stocks started the fourth quarter on a strong note, with all three major indexes closing at record highs after data underscored strength in the economy.

A measure of U.S. manufacturing activity surged to a near 13½-year high in September. Disruptions to the supply chains caused by Hurricanes Harvey and Irma resulted in factories taking longer to deliver goods and boosted raw material prices.

The Institute for Supply Management index rose to 60.8 in September, from 58.8 in August, exceeding expectations for a reading of 58.

U.S. construction spending also rebounded in August after two straight months of declines, boosted by increases in both private and public outlays.

The dollar’s gains came on the back of rising U.S. Treasury yields. The yield on the benchmark 10-year note hit its highest since mid-July on Monday after the upbeat data reinforced expectations that the Federal Reserve will increase U.S. interest rates in December for a third time this year.

“There are strengthening expectations about what the Fed will do for the balance of the year, namely one more rate increase and balance sheet reduction,” said Bill Northey, chief investment officer at U.S. Bank Private Client Group in Helena, Montana.

Due to the impact of the recent hurricanes, Northey said, “we’re going to get some data anomalies over the next few months, but as you step back and take a broader context around trends that exist right now, it is clear the U.S. economy is performing very well, and it will continue to be on an improving path.”

Spot gold edged down 0.1 percent to $1,270.06 per ounce, plumbing its lowest since Aug. 15 as the dollar continued to strengthen.

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