Asian markets rallied Monday after a blockbuster performance on Wall Street as US jobs data beat forecasts and the head of the Federal Reserve hinted at a slower pace of interest rate hikes. China’s move to make it easier for banks to lend also provided support to equities, while investors keep an eye on Beijing as negotiators begin talks to end a trade war between the world’s top two economies.
Dealers started the week on the front foot following a surge on Wall Street Friday that came after figures showed more than 300,000 US jobs were created in December, tempering recent concerns about growth. Later that day, Fed boss Jerome Powell said the bank had no “pre-set” plan for raising borrowing costs and was keeping a close watch on financial developments.
The upbeat mood gave a lift to high-yielding currencies, with South Korea’s won and the Indonesian rupiah soaring against the dollar, while there were also healthy gains for Australia’s dollar.
“We’re listening… sensitively to the message that markets are sending and we’ll be taking those downside risks into account as we make policy going forward,” he told a gathering of economists. The news was music to the ears of traders, who have been fretting that the Fed would press on with its rate hike cycle, making it more expensive to borrow for investment.
The comments saw the Dow pile on more than three percent while the Nasdaq was more than four percent higher. They also overshadowed the budget gridlock on Capitol Hill that has shut down the US government, with Donald Trump warning it could go on for years if he is not given funding to build a wall on the Mexican border.
And the gains filtered through to Asia, where Tokyo’s Nikkei ended the morning session 2.8 percent higher, while Sydney gained 1.3 percent and Seoul jumped 1.6 percent. Taipei surged two percent and Manila was up 1.7 percent with Jakarta 1.1 percent up.
Risk on ‘Stable Footing’
Hong Kong jumped more than one percent and Shanghai was 0.7 percent higher, with buying also boosted by news that the People’s Bank of China had cut the amount of cash banks must keep in reserve. The move aims to free up funds for lending in a bid to grease the economy’s wheels following a string of weak data that has raised questions about the outlook.
Fed boss Jerome Powell said the bank had no “pre-set” plan for raising borrowing costs and was keeping a close watch on financial developments.
There was also some optimism as Chinese and US officials kicked off talks to find a solution to the trade war that has seen the two sides impose tariffs in hundreds of billions of dollars worth of goods. The row was a key factor behind the big losses on global markets last year and any move to bring it to an end will be cheered on trading floors.
Trump on Friday raised hopes for an agreement, saying: “I think we will make a deal with China.” Stephen Innes, head of Asia-Pacific trade at OANDA, said: “Risk sentiment is on more stable footing than we opened 2019 as a confluence of factors including the (China reserve rate) cut, China and the US… holding trade talks this week and of course Chair Powell’s comments.”
All, he said, were “market-friendly developments”. The upbeat mood gave a lift to high-yielding currencies, with South Korea’s won and the Indonesian rupiah soaring against the dollar, while there were also healthy gains for Australia’s dollar.
Oil was also benefitting, with both contracts up more than one percent thanks to the wave of positive headlines. But while there was a sense of hope, analysts remain cagey about the coming months.
“I do think going forward you are probably not likely to see that type of move where equities sell off 20 percent in the space of six weeks, but generally volatility will be higher than what you saw in 2017 and the first half of 2018,” Raymond Lee, managing director and portfolio manager at Kapstream Capital, told Bloomberg TV.
Key Figures around 0230 GMT
Tokyo – Nikkei 225: UP 2.8 percent at 20,113.37 (break)
Hong Kong – Hang Seng: UP 1.2 percent at 25,941.51
Shanghai – Composite: UP 0.7 percent at 2,532.25
Dollar/yen: UP at 108.50 yen from 108.44 yen at 2200 GMT Friday
Euro/dollar: UP at $1.1411 from $1.1398
Pound/dollar: UP at $1.2738 from $1.2730
Oil – West Texas Intermediate: UP 66 cents at $48.62 per barrel
Oil – Brent Crude: UP 62 cents at $57.68 per barrel
New York – Dow: UP 3.3 percent at 23,433.16 (close)
London – FTSE 100: UP 2.2 percent at 6,837.42 (close)
© Agence France-Presse