Asian shares pause near eight-month high, dollar weakens

Asian stocks held near eight-month highs on Thursday and the dollar slipped again on expectations global interest rates will stay lower for longer after a dovish turn by the European Central Bank and milder than expected U.S. inflation.

The British pound was little changed after European leaders agreed to extend the deadline for UK to leave the union to the end of October, averting a potential crash out of the bloc on Friday with no divorce deal.

But investors’ risk appetite was generally capped by U.S. threats earlier this week to slap tariffs on goods from the European Union.

MSCI’s broadest index of Asia-Pacific shares outside Japan paused after four straight days of gains but held near its highest since last August.

Japan’s Nikkei eased 0.2 percent as the yen strengthened.

Overnight, European and U.S. shares gained. On Wall Street, the S&P 500 added 0.35 percent, the Nasdaq climbed 0.7 percent while the Dow was barely changed.[.N]

“There were big worries last year that central banks globally are moving towards policy tightening. Those fears have reversed now,” said Shane Oliver, chief economist at AMP.

“There have also been easings in Asia. That is a reasonably positive backdrop for equities,” Oliver added.

“The complication is the growth slowdown.”

On Wednesday, the European Central Bank (ECB) kept its loose policy stance and warned that threats to global economic growth remained. The ECB has already pushed back its first post-crisis interest rate hike, and President Mario Draghi raised the prospect of more support for the struggling euro zone economy if its slowdown persisted.

In response, European bank stocks declined and the yield on Germany’s benchmark 10-year bond fell to a one-week low of negative 0.039 percent.

Separately, data showed U.S. consumer prices increased by the most in 14 months in March but underlying inflation remained benign against a backdrop of slowing global economic growth.

Minutes from a March 19-20 meeting of Federal Reserve policymakers showed they agreed to be patient about any changes to its interest rate policy as they saw the U.S. economy weathering a global slowdown without a recession in the next few years.

U.S. Treasury yields slipped in response, reinforcing expectations that the Fed would hold rates steady or possibly cut them by the end of the year.

However, AMP’s Oliver said some encouraging economic signs were now emerging, helped by the “great retreat” on policy by global central banks, fiscal stimulus in China and progress in Sino-U.S. trade talks.

U.S. Treasury Secretary Steven Mnuchin said on Wednesday the United States and China have largely agreed on a mechanism to ensure that both sides stick to the deal, including establishing new “enforcement offices.”

Investors will next focus on inflation data from China at 0130 GMT. A weak number could raise fears of deflation spreading across the world, while a pick-up could add to optimism that government support measures are slowly beginning to percolate through the economy.

In currencies, the dollar index fell for a fourth straight day to 96.909. The euro was barely changed at $1.1278 while the Japanese yen paused after three days of gains at 111.03.

Sterling traded at $1.3095, unchanged on the day and staying in a triangle holding pattern between $1.2945 and $1.3380 during the past month or so.

In commodities, Brent futures eased 14 cents to $71.59 a barrel. U.S. crude dipped 24 cents to $64.37.

Gold hovered near a two-week top on Thursday at $1,307.795 an ounce as investors fretted about the global economy and trade tensions.


Author: Prakash Poojary

Business Analyst

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