Asian stocks extend rally, currencies stuck in tight ranges

Tokyo — Asian shares extended their recovery into a fourth day on Wednesday, buoyed by strong US earnings and expectation that Beijing will ramp up fiscal stimulus to cushion the impact of its worsening trade dispute with Washington.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.3%, led by Taiwan, while Japan’s Nikkei ticked up 0.4%.

Bucking the trend were Chinese shares, which slipped about 0.4% after the US said it would begin collecting 25% tariffs on an additional $16bn worth of Chinese goods this month, the second leg of its first China-targeted tariffs on $50bn goods.

News that the fresh duties will go into effect from August 23 overshadowed strong Chinese trade data, which showed exports rose more than expected in July despite US tariffs imposed early last month.

Imports also rose more than forecast, suggesting its domestic demand remains resilient despite fear about the trade war.

Losses in Chinese markets were tempered by signs Beijing is unveiling further measures to support growth, such as increasing infrastructure spending and tweaking its monetary policy stance.

“China’s apparent policy shift from structural reforms to short-term policy support appears to be starting to give some support to other major markets,” said Chotaro Morita, chief fixed income strategist at SMBC Nikko Securities.

“Yet the reason they have to do so is escalating trade tensions so you can’t expect much upside. On the other hand, a boost to the US economy from tax cuts is peaking out soon. In coming months, the focus will be how markets will price [this] in.”

On Wall Street, the S&P 500 rose 0.28% to 2,858, which is just 14 points, or about 0.5%, below its record high marked in January.

A strong second-quarter earnings season has fuelled optimism about US economic strength. S&P 500 companies posted an average 23.5% rise in their April-June profits, according to Thomson Reuters data.

Against this backdrop, the CBOE volatility index, a measure of investors’ expectation on US share price volatilities and often viewed as a gauge of anxiety in financial markets, fell to a seven-month low of 10.93.

Tesla jumped 11% after CEO Elon Musk said he was considering taking the electric car maker private.

Currencies

In the foreign exchange market, major currencies kept to tight ranges. The euro was at $1.1599, off Monday’s five-week low of $1.1530.

The yen stood little changed at ¥111.38 to the dollar while concern about a hard Brexit kept the sterling at $1.2938, just above its 11-month trough of $1.2920 set on Monday.

The Chinese yuan was little changed, keeping some distance from 15-month lows hit last week, as the central bank on Friday took steps to curb bets against the currency by raising the cost for investors to short the yuan.

But pressure on the Chinese currency remained strong.

“The Chinese authorities do not seem to be aiming to push up the yuan. Considering that US is likely to impose another tariff on $200bn imports from China, speculators are betting on further falls in the yuan,” said Naoki Tashiro, president of TS China Research.

“The US is raising rates while China is easing its monetary policy. For speculators, dollar buying is the obvious trade.”

The Turkish lira, the biggest mover in recent days, kept some distance from Monday’s record low, trading at 5.2600 to the dollar, versus Monday’s low of 5.425,

Still, it is down almost 7% so far this month on deepening concerns about a rift with the US and on President Tayyip Erdogan’s influence over the central bank.

Oil prices held firm after US sanctions on Iranian goods went into effect, intensifying concern that sanctions on Iranian oil, expected in November, could cause supply shortages.

Brent futures stood at $74.65 a barrel, flat on the day but maintaining gains of about 2% so far this week.

US West Texas Intermediate (WTI) crude futures traded at $69.25 a barrel, up 0.1% on the day for a gain of 1.1% so far this week.

Reuters