Asian shares rise on earnings optimism. The yen falls to a four-year low
Asian shares rose and long-dated US bond yields increased to a five month high on October 20, thanks to rising optimism about the global economic and corporate earnings. The yen fell to a low of four years on the dollar.
Japan’s Nikkei rose by 0.8 percent, while MSCI’s broadest index Asia-Pacific shares outside Japan gained 0.3 percent. This was led by 0.9 percent gains from Australia.
“Earlier this month, Wall Street was abuzz about stagflation. However, excessive pessimism has receded, particularly after Friday’s strong US retail sales data,” stated Norihiro Fujito (chief investment strategist, Mitsubishi UFJ Morgan Stanley Securities).
New York’s benchmark S&P 500 index rose 0.74 percent to close just 0.4 percent lower than its September record close. Meanwhile, the CBOE market volatile index dropped 0.6 points after earlier reaching 15.57, its lowest level since mid August.
Fujito stated that tech shares and other high growth shares that would have been sold due to rising bond yields were rallying. This clearly indicates that there is strong optimism about future earnings.
In many countries, earnings reports will be in full swing in the coming weeks. ASML Holdings, a Dutch chip-making machine manufacturer, and Tesla will both release their results on October 20.
Positive sentiment saw US bond yields rise further with the 10-year US Treasuries yield rising to 1.662 Percent, an increase that was last seen in May.
However, yields fell, with the 2-year yield falling to 0.404 percent, from the Oct 18 peak of 0.448%. This was due to traders taking profits from their bets that the US Federal Reserve would become hawkish during its November policy meeting.
Investors anticipate the Fed to announce a tapering of its bond purchases and that money markets futures will price in one rate increase later next year.
“The Fed will likely become more hawkish and probably modify its language to reflect its assessment of the possibility that inflation is temporary. According to Naokazu Koshimizu (senior strategist at Nomura Securities), tapering will not be tied to any future rate rise. However, the market will likely price in rate increases and flatten out the yield curve.”
The currency market saw rising yields help to lift the US Dollar to a 4-year high against the Japanese yen of 114.585 per USD.
The yen was also affected by US yields. There were rising expectations of a larger trade deficit in Japan. Also, there were concerns that the Bank of Japan would continue to loosen monetary policy, even though other central banks are tightening their policies.
The Chinese Yuan remained firm and traded at 6.3760 USD in offshore trade, close to the October 19 4-1/2 month high of 6.3685.
At $1.1643, the euro was more stable.
Bitcoin was at $64,068, close to its record high of $64,895 in cryptocurrencies. The first US Bitcoin futures-based exchange traded fund opened trading on October 19.
As the world continues to experience an energy shortage, oil prices in Asia have slowed slightly but they remain near their multi-year peak.
US crude oil futures were trading at $82.65 per bar, down 0.4% on the day but close to Monday’s peak of $83.18, their highest level since 2014. [O/R]