Asian stocks recoup losses but Aussie wobbles on uncertain election; STI up 0.8%

Australian banknotes in various denominations are arranged for a photograph in Sydney, Australia.
Australian banknotes in various denominations are arranged for a photograph in Sydney, Australia.PHOTO: BLOOMBERG

TOKYO (REUTERS) - Asian shares shrugged off early losses and edged higher on Monday (July 4), while the Australian dollar was under pressure after no clear winner emerged from a weekend election.

Activity across much of the region was subdued ahead of the US Independence Day holiday, when financial and commodity markets will be closed.

Investors also continued to take stock of the potential financial market and economic fallout from the Brexit vote after days of volatile trade that followed in its wake.

While Australian politics usually have a muted impact on broader markets, the vote count so far suggests possible policy paralysis ahead which could pose a threat to the country's triple A credit rating.

But both Australian shares and the country's currency turned higher after Moody's Investors Service said short-lived political uncertainty would have limited implications for the country's coveted triple-A credit rating.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.5 per cent, after Wall Street logged its fourth straight day of gains on Friday. Japan's Nikkei stock index added 0.3 per cent.

Singapore's Straits Times Index was up 0.77 per cent at 2,868.33 as of 11:12 am.

Australian shares also clawed their way out of negative territory and rose 0.3 per cent.

The Reserve Bank of Australia (RBA) will hold its July board meeting on Tuesday, and almost all 37 economists polled by Reuters last week expect it to keep the cash rate unchanged at a record low 1.75 per cent.

But some analysts say it might hint at future policy easing in the wake of Brexit, which roiled financial markets and raised fears about a further blow to fragile global growth.

"The possibility of a hung Parliament (with possible ratings outlook implications) and the risks that we see an easing bias reinstated in the RBA statement on Tuesday due to Brexit and a deteriorating global outlook suggest that the Australian dollar should trade on the back foot," strategists at Westpac said in a note.

The Australian dollar was slightly higher at US$0.7495, off session lows but still below Friday's one-week high of US$0.7504.

The British pound edged up 0.1 per cent to US$1.3289, nursing its losses after its 11 per cent plunge to a 31-year trough of US$1.3122 a week ago following last month's Brexit stunner.

The US dollar took a breather ahead of the holiday, with the dollar index steady at 95.630, but it remained pressured by a fall in U.S. Treasury yields on Friday that saw the benchmark 10-year yield briefly touch a four-year nadir.

Volatile trade around the world has pressured bond yields. Early on Monday, the yield on the 5-year Japanese government bond fell to a record low of minus 0.375 per cent, and the 20-year JGB yield wallowed at a record low of 0.035 per cent.

The euro inched slightly lower to US$1.1139 and was down slightly against its Japanese counterpart at 114.27 yen . The dollar rose slightly to 102.60 yen.

Crude oil prices built on Friday's surge and extended gains on Monday in Asia, bolstered by the Saudi energy minister's view that the oil market is heading towards balance.

Brent crude added 0.2 per cent US$50.45 a barrel, while US crude rose 0.2 per cent to US$49.08. There will be no US crude settlement on Monday due to the holiday.

Spot gold added 0.5 per cent at US$1,349.20 an ounce after gaining 1.5 per cent on Friday and about 9 per cent in June.

Silver surged 3.6 per cent to US$20.43 an ounce, breaking the US$20-dollar level for the first time in nearly two years.