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Asian shares up, dollar wallows as Fed soothes inflation fears

Asian shares up, dollar wallows as Fed soothes inflation fears

FILE PHOTO: A TV reporter stands in front of a large screen showing stock prices at the Tokyo Stock Exchange after market opens in Tokyo, Japan October 2, 2020. REUTERS/Kim Kyung-Hoon

SHANGHAI: Asian shares rose on Wednesday while the U.S. dollar stood near its lowest levels this year after U.S. Federal Reserve officials reaffirmed a dovish monetary policy stance, providing yet more assurance to investors worried about the inflation outlook.

Richard Clarida, the Fed's vice chair, said on Tuesday that the U.S central bank would be able to curb an outbreak of inflation and engineer a "soft landing" without throwing the country's economic recovery off track.

All the same, Clarida's comments reflect a shifting tone at the Fed. A month ago, Fed Chair Jerome Powell said it was "not yet" time to even contemplate discussion of policy tapering, but more recently policymakers have acknowledged they are closer to debating when to pull back some of their crisis support for the U.S. economy.

That uncertainty weighed on U.S. stocks overnight, with the Dow Jones Industrial Average down 0.24per cent, the S&P 500 off 0.21per cent and the Nasdaq Composite 0.03per cent lower.

But in Asia, the soothing Fed comments helped to boost sentiment.

"The messages were not necessarily new but they reinforced the prevailing consensus still that the bulk of the surprise in April (CPI) can be traced to transitory elements," said Stefan Hofer, chief investment strategist at LGT in Hong Kong.

"The proof is in the pudding so to speak over the coming months, how much of the CPI increase is structural and how much of it is transitory. And the jury is I would say still out on that, but the Fed is sticking to its guns and markets seem to be by and large still comfortable with that."

U.S. consumer prices increased more than expected in April as booming demand amid a reopening economy pushed against supply constraints.

In early regional trade, MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.28per cent near more than two-week highs, while Tokyo's Nikkei added 0.27per cent.

Australian shares were 0.27per cent higher and Seoul's Kospi tacked on 0.16per cent. Chinese blue-chips were up 0.13per cent after posting their biggest daily gain in nearly 11 months on Tuesday on easing inflation fears and a strong yuan.

On Wednesday, China's central bank set the yuan's daily midpoint fixing at its strongest level since June 2018 after the currency tested a key level against the dollar a day earlier, prompting state banks to step into curb the rally.

The dollar index was steady at 89.696 after touching its lowest level since Jan. 7 on Tuesday. The greenback was unchanged against the yen at 108.76 and the euro was off a touch by 0.07per cent to US$1.2242.

Analysts at Jefferies said regional equity markets could benefit, especially given a weak dollar could help boost global trade and emerging markets by lowering global prices of goods and services.

"A weak dollar should underwrite emerging market performance despite very mixed vaccine roll-outs to date," they said in a note.

"Until the U.S. government declares the pandemic is over and job growth is running at one million plus per month, tapering is unlikely to happen...In the meantime, real rates will be heavily negative. Moreover, based on the dollar's Real Effective Exchange Rate, the greenback cannot be described as being 'cheap'."

The benchmark U.S. Treasury yield edged higher after falling to multi-week lows on Thursday on easing inflation concerns and a strong auction of 2-year notes.

The 10-year yield rose to 1.5706per cent, from a close of 1.564per cent on Tuesday, but the two-year yield dipped to 0.1485per cent, from a close of 0.152per cent.

Oil was little changed as traders weighed expectations of improving demand in the U.S. against the possibility of new supply from Iran. Global benchmark Brent crude was up 3 cents at US$68.68 and U.S. crude fell 7 cents to US$66 per barrel.

Bitcoin was up 0.88per cent at US$38,736.99 despite China's northern region of Inner Mongolia escalating a campaign against cryptocurrency mining on Tuesday, days after Beijing vowed to crack down on bitcoin mining and trading.

Spot gold added 0.17per cent to US$1,902.58 an ounce.

(Reporting by Andrew Galbraith; Editing by Shri Navaratnam)

Source: Reuters

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