Asian stocks jump to 1-year highs as yield hunt spreads, STI up 1.4%

Chinese investors sit in front of a screen showing stock market movements in Hangzhou, China. Asian stocks hit a 1-year high on August 8.
Chinese investors sit in front of a screen showing stock market movements in Hangzhou, China. Asian stocks hit a 1-year high on August 8. PHOTO: AFP

HONG KONG (REUTERS) - Asian stocks rose to one-year highs and the Australian dollar climbed on Monday (Aug 8) as investors' hunt for yield gathered momentum against a backdrop of a recovering US economy and ultra-easy easy global monetary policy conditions.

While the strong July US payrolls data raised hopes the world's biggest economy may have conclusively turned a corner after some volatile readings this year, markets expect the Federal Reserve will only hike in 2017 given that other countries are still cutting rates.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.7 per cent and hit its highest level since August 11 last year. It is up 12 per cent in six weeks.

"The general sentiment among investors in emerging markets is to make hay while the sun shines even though this rally is starting to look a bit dangerous," said Cliff Tan, East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ based in Hong Kong referring to stretched valuations.

Japan and Australian markets led regional gainers while mainland China shares lagged, weighed down by disappointing Chinese trade data.

Singapore's Straits Times Index was up 1.41 per cent at 2,868.02 as of 2:13 pm.

The US Department of Labor said July nonfarm payrolls rose by 255,000 and revised the June increase upward to 292,000. Economists polled by Reuters had forecast July payrolls would increase by 180,000.

Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said equities reacted positively to the jobs report which shed a positive light on the US economy while prospects of a near-term rate hike by the Federal Reserve - generally seen as a negative for riskier assets - remained subdued.

"The Fed funds rate futures are still only pricing in about a 26 per cent chance a US rate hike in September and October, and about a 46 per cent chance for December. This shows investors don't really expect the Fed to hike rates until December," Mr Fujito said.

The strong US jobs report was a rare bright spot of data in the global economic landscape, with Australia's central bank and the Bank of England cutting interest rates last week and New Zealand set to follow in coming days.

Along with a presidential election campaign, the global easing by central banks will cap the ability of the Fed to move on interest rates in the coming months, said Rick Rieder, chief investment officer of global fixed income at Blackrock.

The hunt for yield saw safe-haven government debt prices taking it on the chin. Ten-year Japanese bond futures tanked and even 10-year Australian bond yields, a target for yield-happy investors, firmed to 1.97 per cent.

In currency markets, the dollar was up 0.3 per cent at 102.04 yen. It was steady against the euro at US$1.10925.

The dollar index, which tracks the greenback against a basket of six major rivals, softened to 96.169, not far from a one-week high of 96.522 hit on Friday after the jobs report.

While major currencies are expected to stick to recent ranges, market participants say thin market conditions could amplify moves, and higher U.S. rates were far from guaranteed.

Despite a cut in interest rates last week, the Aussie was among best performing currency in Asia as its relatively higher interest rate offer and AAA credit ratings strengthened its appeal. It was up 0.01 per cent at US0.7613.

In commodities, spot gold was up 0.16 per cent to US$1,337.02 an ounce, a low not seen since July 29.

Crude oil futures, which ended modestly lower on Friday, rose on Monday. US crude added 0.48 per cent to US$42 a barrel, while Brent crude was up 0.45 per cent at US$44.47.