Asian shares shrug off sluggish start and push higher

Asian shares shrugged off a sluggish start and pushed higher on Tuesday, with Japanese markets leading the way after an upbeat US manufacturing survey bolstered the dollar.

Australian shares slipped 0.2 per cent after Australia’s central bank kept its cash rate steady at 1.5 per cent on Tuesday, a widely expected decision as it assesses the impact of its May and August rate cuts.

“We think the case for no more cuts is strengthening,” says Paul Bloxham, chief economist for Australia at HSBC. “Economic growth is strong, commodity prices have risen, and the drag from the mining investment decline is set to fade.”

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 per cent, while Japan’s Nikkei stock index gained 0.8 per cent as the dollar rose against the yen. Markets in China are on holiday this week.

The Institute for Supply Management said on Monday that its index of US national factory activity rose to 51.5 in September from 49.4 in August, indicating that the sector is now expanding.

Strong dollar trend

“The upbeat US data is lifting expectations for a strong dollar trend, which helps earnings concerns recede for Japanese exporters,” said Hikaru Sato, senior technical analyst at Daiwa Securities.

US stocks slumped overnight, with Deutsche Bank shares resuming their slide as hopes faded that Germany’s largest lender would reach a swift deal with the US department of justice over a fine of up to $14 billion for mis-selling mortgage-backed securities.

The upbeat US factory numbers had a mixed impact on US shares overnight. While strong at reassuring investors worried about the strength of the US economy, it also adds to bets that the Federal Reserve is on track to raise interest rates as early as this year. Higher rates, while good for the dollar, could pressure equity markets.

“Firmed prospects for a December rate hike were not taken well in the equity markets,” Angus Nicholson, market analyst at IG in Melbourne, wrote in a note. “The prospects of higher interest rates makes the present value of steady cash flow producing assets such as property and utilities correspondingly less valuable.”

Rate increase

Fed funds futures imply that investors slightly favour the chance for an interest rate increase in December. The dollar index, which tracks the greenback against a basket of six major peers, added 0.2 per cent to 95.899.

Against the yen, the dollar added 0.5 per cent to 102.13 , while the euro was 0.1 per cent lower at $1.1197. The main economic indicator this week is Friday’s nonfarm payrolls report. Employers are expected to have added 170,000 jobs in September, according to the median estimate of 59 economists polled by Reuters.

Sterling wallowed close to 31-year lows and was last at $1.2834, plunging after the UK set a March deadline to begin the formal process for Britain’s exit from the European Union.

Crude oil futures took a breather following sharp gains overnight after Iran urged other oil producers to join OPEC in supporting the market. US crude was down 0.5 per cent at $48.55 a barrel after closing up 1.2 per cent on Monday. Brent was down 0.4 per cent at $50.71 after gaining 1.4 per cent overnight.

– (Reuters)