Asian shares hit 2-month high after solid US jobs growth

Asian shares hit two-month highs on Monday, extending sharp gains from last week, following upbeat US jobs data, a rebound in oil and commodity prices and a flurry of reassurances from Chinese leaders that the economy would remain on sound footing.

European shares are expected to slip after last week’s gains, however, with spread-betters looking to a fall of up to 0.5 per cent in Britain’s FTSE, 0.4 per cent in Germany’s DAX and 0.2 per cent in France’s CAC 40. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4 per cent. It has recouped about 80 per cent of its losses since the start of 2016.

“With a strong rebound in commodities, the mood is shifting, and will likely stretch the rebound - till the reality of falling growth sets back in,” wrote Hong Hao, managing director of research at BOCOM International in Hong Kong. Japan’s Nikkei slipped 0.6 percent, with traders taking profits on concerns about a firmer yen and ahead of revised fourth-quarter GDP on Tuesday that is expected to show the economy contracted slightly more than initially estimated.

Chinese markets edged up slightly after Prime Minister Li Keqiang on Saturday spelled out a new five-year economic plan, which included an average economic growth target of 6.5 to 7 per cent and a moderate increase in the fiscal deficit to 3 per cent of GDP this year. “Chinese investors weren’t expecting big fiscal stimulus at all so there’s no disappointment there. Talk of fiscal stimulus mainly came from foreigner investors,” said Naoki Tashiro, president of TS China Research. The Shanghai Composite index rose 0.3 per cent and an index of China’s start-up market rose 2.1 per cent.

Tashiro noted that Prime Minister Li’s speech did not touch on liberalising rules on initial public offerings. US nonfarm payrolls grew by 242,000 jobs last month, beating forecasts for 190,000, while the participation rate rose for three months in a row. The upbeat figures, coming after data last week showing some signs of recovery in the US manufacturing sector, eased worries that the US economy could be slipping into recession under the weight of low oil prices and a stronger dollar.

"The US job data helped to push back excessive pessimism on the U.S. economy. A brightening US economic outlook is underpinning various risk assets," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. On the other hand, average US hourly wages unexpectedly dipped by 0.1 per cent after a surprisingly strong 0.5 percent increase in January. That suggested the Federal Reserve can afford to wait longer before raising interest rates again. As a result, US interest rate futures are now pricing in only one rate hike by the end of this year, with virtually no chance seen of a March hike.

The US 10-year bond yield rose to a one-month high of 1.902 per cent on Friday but remained way below its levels of around 2.25 per cent in December when the Fed raised rates for the first time in almost a decade. That limited the dollar’s attraction against other currencies.

The dollar's index against a basket of six major currencies dipped to near two-week low of 97.019 on Friday and last stood at 97.323. The euro rose to one-week high of $1.1043 on Friday and last stood at $1.0992. The common currency has been pressured by anticipation that the European Central Bank will expand its stimulus at a policy meeting on Thursday. The yen was little changed at 113.67 to the dollar. The commodity-linked Australian dollar shot up to a 5 1/2-month high of $0.7444 on Friday and last stood at $0.7412.

Elsewhere, oil prices hit near-three-month highs, extending their gains of about 10 per cent last week as traders close short positions. Benchmark Brent crude futures rose to as high as $39.50 per barrel, their highest since mid-December. That is almost one-third above its 12-year low hit in February.

“It looks at this stage as if it (oil) has formed a little bit of a bottom and perhaps we’re going to see a sustained price in the $30s, maybe trending back up to $40 dollars at some point,” said Ben Le Brun, market analyst at OptionsXpress.

Reuters