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Markets Update am

Asian shares highest in 4 months; dollar up

  • European stocks take a breather after rally

  • Singapore’s central bank eases policy
  • Risks of Asia wide Currency rout
  • IMF cut its global growth forecast for the fourth time in the past year

Asian stocks rose to their highest levels in more than four months on Thursday and regional currencies weakened led by the Singapore dollar as hopes grew that more central banks will join the city state in easing monetary policy in the coming months.

MSCI’s broadest index of Asia-Pacific shares outside Japan  rose 0.5 percent, reaching its highest level since Nov. 26. It has risen 5 percent since Friday, breaking above several resistance levels to signal further gains.

European shares were seen opening flat on Thursday, with bullish sentiment expected to keep European equities near their highest level in a month.

Singapore’s central bank on Thursday surprised markets by setting the rate of appreciation of the Singapore dollar policy band at zero percent after data previously showed economic growth stalled in the first quarter.

Singapore’s dollar slumped the most since August, dragging down other Asia-Pacific currencies, as surprise easing by the central bank fueled speculation other policy makers in the region will follow suit.  Sumitomo Mitsui Banking Corp. in Singapore. “Some market participants fear a revival of a competitive currency devaluation.”

 

“It’s very interesting, and eye-catching, that the MAS has gone back to post-global financial crisis settings, and sends a strong message about the weak external environment,” said Sean Callow, senior currency strategist at Westpac in Sydney.

“As one of the world’s most trade-sensitive economies, Singapore’s concern over a ‘less favourable external environment’ should be noted by the likes” of South Korea, Australia and New Zealand, Callow said.

“As Asia’s financial hub, Singapore is feeling the effects of the global downturn and China’s weakening economy. “More businesses were shut than opened in December and February, while bank loans have dropped every month since October, the longest period of declines since 2000.”

Notwithstanding the optimistic trade data out of China on Wednesday, Singapore’s policy decision is yet another reminder of the headwinds facing the global economy.

Earlier this week, the IMF cut its global growth forecast for the fourth time in the past year, citing a bunch of factors including chronic weakness in advanced economies.

Stock markets across the region were a sea of green led by Japan and Hong Kong as investors interpreted this as sign of more policy easing by the trade-dependent economies of South East Asia and a shallower trajectory of interest rate increases by the U.S. Federal Reserve in the coming months.

Overnight on Wall Street, the S&P 500 Index .SPX gained 1 percent to a four-month high after JPMorgan Chase’s (JPM.N) first quarter earnings fell less than expected, helping to lift the S&P 500 financial sector .SPSY 2.2 percent. Stock index futures suggested a flat opening.

Risk appetite remained robust with an index of high yield debt (HYG) settling at its highest levels since early December.

In the government bond markets, yields swung lower with the yield on the 30-year Japanese government bond  briefly falling a record low of 0.385 percent. U.S. debt followed with yields on ten-year notes slipping to 1.75 percent.

The yield curve, measuring the gap between the ten-year notes and the two-year bills and an indicator of interest rate expectations, flattened to 100 basis points, signalling a benign rate view.

In the currency markets, rising risk appetite and the hunger for yield spurred the dollar to turn the tables on the lower-yielding euro and yen.

The euro extended its weakness in Asian hours after falling 1 percent on Wednesday, its biggest fall in 5 months. In afternoon trades, it was changing hands at $1.12550, 0.1 percent weaker than Wednesday and off Tuesday’s six-month high of $1.1465.

The dollar bounced back against the yen to 109.37 , extending the recovery from its 17-month low of 107.63 touched on Monday despite softer-than-expected U.S. producer prices and retail sales numbers last month.

“The dollar/yen might not go much higher for now,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo, citing strong resistance at 110 yen.

In Asia, the Singapore dollar  weakened 1 percent after the city state’s central bank eased its policy, triggering a downdraft in other Asian currencies. The Korean won fell more than one percent against the greenback in early deals.

Oil futures hit four-month highs in choppy trading on Wednesday before edging back as comments from Russia’s energy minister added to doubts a producer meeting set for Sunday in Doha to discuss freezing output would yield a positive outcome

Prices fell after Reuters reported that Russian oil minister Alexander Novak told a closed-door briefing that a deal on an oil output freeze scheduled to be signed this month in Doha will be loosely framed with few detailed commitments.

Brent crude futures LCOc1 fell 1.5 percent in Asian trade on Thursday to $43.53 per barrel after having scaled a high of $44.94 on Wednesday.

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