US and Chinese central banks spark gains for Asian shares

Shanghai — Asian shares rose on Monday, boosted by record Wall Street highs on Friday after reassuring comments from the Federal Reserve’s chairman.

Stock markets in China gained after the country’s central bank tweaked its management of the yuan.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 1.1%, while Japan’s Nikkei stock index gained 0.9%.

Helping to brighten the mood, US and Mexican trade negotiators are thought to be close to reaching a common position on the North American Free Trade Agreement (Nafta), with Mexican economy minister Ildefonso Guajardo saying on Sunday talks have “continued to make progress”.

A prospective trade deal with Mexico “takes a little bit of global trade war risk off the table”, said Robert Carnell, chief economist and head of research, Asia-Pacific at ING.

“Every time there’s a move toward fewer tariffs from the US instead of more, then that should take a little pressure off the dollar,” he said.

“The rest of the world doesn’t particularly want a much stronger dollar, because it makes their currencies weak and it means that their central banks have to respond with tighter policy, everything else being equal, which weighs on domestic demand.”

Seoul’s Kospi index advanced 0.3%.

In China, the Shanghai composite index added 1.4% and the blue-chip CSI300 index rose 1.9%, after the People’s Bank of China late on Friday revived a “countercyclical factor” used to set the midpoint of the daily trading band of the yuan, in a bid to support it.

The move raised hope that a yuan recovery could boost companies with significant dollar-denominated costs, such as airlines.

China Southern Airlines gained 4.2% and Air China rose 3.7%.

The yuan hit a two-and-a-half-week high against the dollar in early trade on Monday as the central bank set the day’s midpoint at a stronger-than-expected level.

At 3.41am GMT, the yuan was trading at 6.8110 to the dollar, 80 pips stronger than Friday’s onshore close of 6.8190.

“China just seems to be stabilising its currency and we’re getting used to that fact now, so we’re not looking at an ever-weaker yuan, which could raise issues,” said Carnell. This “reduces the scope for outflows”.

On Friday, the S&P500 index and Nasdaq composite hit record highs, following comments from the chairman of the US Federal Reserve, Jerome Powell, who said a gradual approach to raising rates was best to protect the US economy and job growth.

The gains cemented the S&P’s longest-running bull market, as defined by some investors.

S&P500 E-mini futures touched a record high of 2,885 on Monday morning in Asia, and were last 0.26% higher at 2,884.25.

“Powell’s Jackson Hole speech essentially confirmed the need for further gradual rate hikes and stressed that higher interest rates have served the economy well. However, rate rises remain data-dependent, and other Fed officials reiterated that ‘nothing is predetermined’,” ANZ analysts said in a note on Monday.

“The Fed chair’s reiteration that rate rises would remain gradual gave the green light to ongoing falls in the dollar and increases in equities on Friday.”

US President Donald Trump said in a Reuters interview last week that he was “not thrilled” with Powell’s rate hike policy, seeking more help with the economy from the Fed instead.

The yield on benchmark 10-year Treasury notes was at 2.8188%, compared with its US close of 2.826% on Friday. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 2.6286% compared with a US close of 2.629%.

Australian shares wavered between gains and small losses, following a week of political tumult in which Scott Morrison became the country’s sixth prime minister in less than 10 years.

The S&P/ASX 200 index was 0.3% higher.

The dollar fell 0.15% against the yen to ¥111.05, while the euro was up 0.1% on the day at $1.1630.

The dollar index, which tracks the greenback against a basket of six major rivals, was down 0.07% at 95.075.

US crude was 0.06% lower at $68.68 a barrel, and Brent crude fell to $75.76 a barrel after oil prices rose last week, ending a streak of weekly declines on tightening supply, driven by the prospect of lower oil supply from Iran.

The US has pulled out of a nuclear accord it signed with Iran in 2015, and has imposed sanctions on Iran’s oil industry and other exports.

Gold edged higher as the dollar weakened. Spot gold gained 0.14% to trade at $1,207.24 an ounce.

Reuters