Asian shares, US dollar up on Fed's economic optimism

Asian shares were firm on Thursday after the US Federal Reserve said it saw the economy and jobs continuing to strengthen.
Asian shares were firm on Thursday after the US Federal Reserve said it saw the economy and jobs continuing to strengthen.PHOTO: REUTERS

TOKYO (REUTERS) - Asian shares were firm on Thursday after the US Federal Reserve said it saw the economy and jobs continuing to strengthen, helping lift the US dollar as traders bet that higher US interest rates were around the corner.

Japan's Nikkei rose 0.8 per cent while Australian shares tacked on 0.3 per cent and South Korean shares gained 0.2 per cent.

Dollar-denominated MSCI's broadest index of Asia-Pacific shares outside Japan was almost flat.

On Wall Street overnight, US stocks rose broadly on the Fed's optimism and strong corporate earnings, with S&P 500 rising 0.7 per cent to 2,108.57.

The Fed said in its statement after a policy-setting meeting on Wednesday that the US economy and job market continue to strengthen.

"On the whole, you could say that the Fed still cannot make up its mind. A rate hike is getting nearer but it's not there yet," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

The Fed also said it now only needs to see "some" more improvement in the labour market, a qualification that some analysts said suggested it believes the recent solid US job gains will continue.

That language kept alive expectations among some analysts for the Fed to raise interest rates as early as September.

But US interest rate futures markets continued to price in a later rate hike, with December seen as the mostly likely start date:

"The markets still think that the world's economy remains fragile given a fall in Chinese shares and commodity prices. The Fed surely doesn't want to screw up its exit from zero rates by hastily moving and hitting already fragile commodities market and the world economy," said Daiwa's Yamamoto.

Concerns that the massive fall in Chinese share prices since last month could put additional drag on an already-slowing Chinese economy have hurt many emerging market shares and commodities that had long benefited from rapid expansion of the world's second largest economy.

On Wednesday, though, most commodity prices gained, reflecting positive risk sentiment in other markets.

Copper futures rose 0.6 per cent to US$5,328.20 per tonne, extending their recovery from Monday's six-year low of US$5,164.00 to 3.2 per cent.

MSCI's emerging market equity index, which has been hit by worries over impending US rate hikes, a China slowdown and falls in commodities, rebounded from a two-year low hit on Tuesday.

Oil prices, smarting from supply concerns due to rising US shale oil output and easing of sanction on Iran, also rose after weekly data showed an unexpectedly large drawdown in US crude inventories.

Front-month Brent crude futures rose to settle at US$53.38 a barrel, recovering from Tuesday's six-month low of US$52.28.

In the currency market, confirmation that the Fed is on course to raise rates later this year was enough to send the dollar higher against most other currencies at a time when the focus for many countries remained on stimulating their respective economies.

The dollar index rose to 97.160 , keeping intact its rebound from Monday's two-week low of 96.288.

The euro fell 0.2 per cent to US$1.0964, near its lowest level so far this week. In recent weeks, the euro tends to fall when risk appetite is strong as it is used as a funding currency for investment in risk assets.

The dollar also rose about 0.1 per cent in early Asian trade to 124.075 yen, hitting its highest level so far this week.