Asia stocks surge on global rally as oil closes in on US$50, STI up 1.1%

A pedestrian looks at a quotation board displaying the Nikkei key index from the Tokyo Stock Exchange in Tokyo on May 25.
A pedestrian looks at a quotation board displaying the Nikkei key index from the Tokyo Stock Exchange in Tokyo on May 25.PHOTO: AFP

TOKYO (AFP) - Asia stocks jumped on Wednesday (May 25) building on a strong lead from Wall Street and Europe, and as investors adjusted to the prospect of a US rate hike in the near future.

Energy stocks soared in Hong Kong and Sydney as oil prices rebounded, while in Tokyo exporters were lifted by a weaker yen, which is a plus for their profitability.

Hong Kong increased 2.6 per cent and Sydney rose 1.8 per cent, while Seoul, Taiwan, Manila and Singapore also jumped above the one per cent mark. Shanghai ticked up 0.25 per cent.

Singapore's Straits Times Index was up 1.05 per cent at 2,779.17 as of 12:40 pm.

Tokyo surged 1.8 per cent as the dollar advanced against the Japanese currency. A weaker yen is good for Japanese exporters, a key driver of the world's third largest economy, by inflating the value of their profits earned overseas.

The gains in Asia followed a jump in European markets, which had received a boost Tuesday as Brexit fears eased on the back of opinion polls that suggested Britain will vote to remain in the European Union next month.

Wall Street stocks also had a good day after the Commerce Department figures showed US new-home sales in April surged to their best level since January 2008 despite a hefty rise in median prices, prompting analysts to see a strengthening in the housing market, a key sector for US growth.

The Fed has repeatedly stated its intention to continue raising rates this year after December's first hike in nine years, but until recently investors had discounted the possibility of an imminent increase, given the market panic at the beginning of 2016 on concerns of soft global growth.

"Strong US new-home sales have added credence to the Fed's claims that the US economy may be strong enough for another rate hike in June or July," Angus Nicholson, a market analyst at IG in Melbourne, said in a commentary.

The markets are now reacting well to the news, analysts said, as a sign the economy is doing better.

"Before, there was a sense that higher rates would spell trouble, but the market has had time to digest that," said Bill Schultz, chief investment officer at McQueen, Ball & Associates Inc told Bloomberg News.

"People may be coming around on the idea of a rate hike as an indication of economic strength. Maybe there's a bit more of an optimistic view, and today we're rallying through the close."

The greenback ticked up to 110.14 yen in early trade from 109.99 yen in New York, and from 109.22 yen in Tokyo on Tuesday on the mounting expectations of a US interest rate increase.

Energy firms were among the best performers regionally, as oil prices edged towards US$50 a barrel in Asia after a larger-than-expected dip in US stockpiles resulting from wildfires that have disrupted oil production in Canada.

US benchmark West Texas Intermediate was up 62 cents to US$49.24 a barrel and Brent crude was trading 55 cents higher at US$49.16 a barrel.

In Tokyo, automaker Toyota climbed almost two percent following overnight news of a partnership with ridesharing titan Uber and consumer electronics giant Sony increased more than six per cent after investors shrugged off a weak profit forecast.

Elsewhere, eurozone finance ministers reached a vital deal with Greece on Wednesday to start debt relief for Athens as demanded by the International Monetary Fund, and to unlock 10.3 billion euros in bailout cash.