GLOBAL MARKETS: Asia shares hit 2007 top, dollar skids

Published Jul 27, 2017

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Sydney - Stocks, bonds and commodities

were all on a roll in Asia on Thursday, as bulls scented a

softening in the Federal Reserve's confidence on inflation that

promised to keep US interest rates low for longer than some

had expected.

MSCI's broadest index of Asia-Pacific shares outside Japan

climbed 0.9 percent to heights not seen since

December 2007. It has gained over 5 percent so far this month.

South Korea and Japan's Nikkei both added

0.2 percent, while Australia put on 0.3 percent. Stocks

in the Philippines were at a one-year peak and Hong

Kong's Hang Seng index added 0.3 percent to push above

27,000.

But worries about tighter regulations nudged China's

blue-chip CSI300 index down 0.7 percent, though data

showed a pick up in profit growth for industrial firms.

The latest rush for risk came after the Fed left US rates

unmoved as expected on Thursday, and tweaked its wording on

inflation.

The market seized on the fact that the central bank noted

that both overall and core inflation had declined, and it

removed the qualifier "recently," perhaps suggesting concerns

the slowdown might not be temporary.

The Fed also said it expected to start winding down its

massive holdings of bonds "relatively soon," cementing

expectations of a September start.

While that would be an effective tightening in financial

conditions it might also lessen the need for actual hikes in

rates, which matter more for currency valuations.

"The dollar's biggest problem is it can't expect help from

the Fed for a long time," said Alan Ruskin, global head of forex

at Deutsche.

"In the short-term we are still in a risk-favourable loop,

whereby subdued goods and services inflation supports a well

behaved bond market and asset inflation. It's just another day

in paradise."

A Reuters poll showed most primary dealers, the banks

authorized to trade directly with the Fed, still see the Fed's

next rate rise in December. But Fed funds rate futures are

pricing in less than 50 percent chance of a hike by then,

compared to more than 50 percent before the Fed's

meeting.

Yields on US 10-year benchmark US Treasuries fell 5

basis points and were last at 2.278 percent. The

dollar followed, falling to a 13-month trough against a basket

of currencies of 93.322.

The euro, which had been bumping up against a 23-month top

for most of the week, finally broke through to reach $1.1750

, its highest since January, 2015.

The next major chart target was the 200-week average at

$1.1807 - a measure the euro has not traded above since August

2014.

The dollar was fast approaching the 200-week barrier on its

Canadian counterpart, and had breached that technically

important level on the Australian dollar.

The dollar even fell back against the yen to 110.875,

though the damage was somewhat limited by expectations the Bank

of Japan would keep its super-easy policies in place longer than

most other global central banks.

The prospect of US policy staying stimulative saw Wall

Street's fear gauge touch a record low as stocks notched

record closing highs. The Dow ended Wednesday up 0.45

percent, while the S&P 500 added 0.03 percent and the

Nasdaq 0.16 percent.

The declining US dollar boosted commodities priced in the

currency. Spot gold hit a six-week high and was last

trading at $1,263.80, while copper reached territory not

trod since May 2015.

Oil prices neared eight-week highs as a surprisingly sharp

drop in US inventories encouraged speculation a global crude

glut would recede.

A bout of profit-taking in Asia on Thursday saw Brent crude

futures ease 6 cents to $50.91 a barrel, while US crude dipped 7 cents to $48.68.

Reuters

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