Asian shares cling to 15-month highs, US dollar soft on less hawkish Fed

Pedestrians walk next to an electric quotation board flashing the Nikkei key index of the Tokyo Stock Exchange (TSE) in front of a securities company in Tokyo.
Pedestrians walk next to an electric quotation board flashing the Nikkei key index of the Tokyo Stock Exchange (TSE) in front of a securities company in Tokyo. PHOTO: AFP

TOKYO (REUTERS) - Asian shares clung to their 15-month highs on Tuesday (March 21) while the US dollar and US bond yields were on the back foot on the prospects of a less-hawkish Federal Reserve policy trajectory.

In early trade, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 per cent, staying near a 15-month high it touched on Monday, with South Korean shares hitting two-year highs.

Japan's Nikkei dropped 0.8 per cent, weighed by financial stocks, which were hurt by lower US yields and exporter stocks, which fell on the yen's gains against the dollar.

While Asian shares have been supported by signs of strong global economic growth, concerns about protectionism cast a shadow after financial leaders of the world's biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist US. Wall Street shares drifted lower on Monday as investors worried that President Donald Trump's plan to cut taxes and boost the economy could take longer than previously expected.

"Any fiscal spending by the Trump administration will not come until August at earliest and probably much later. So any economic benefit of that will show up only next year," said a senior trader at a European bank. "So the markets are gradually pricing that in, winding back their initial rally after the elections."

Although Trump promised in early February to deliver a "phenomenal" tax plan within a few weeks, no such details have been released yet.

"US stocks valuations are getting really expensive, so I expect the market to be capped for now. That also means Japanese shares are unlikely to gain further," said Tatsushi Maeno, senior strategist at Okasan Asset Management.

Expectations that the Federal Reserve will have to step up rate hikes to counter inflationary pressure from Trump's stimulus are also waning after the Fed dropped no hints of an acceleration in credit tightening last week.

Chicago Federal Reserve President Charles Evans, in one of the first official comments after the Fed raised rates as expected last week, reiterated that message on Monday.

He said that two more interest rate hikes this year are likely, disappointing investors who had anticipated a faster path of rate increases.

His comments helped to bring down the 10-year US Treasuries yield to 2.463 per cent, its lowest level in two weeks.

Lower yields undermined the greenback's allure, softening the dollar to three-week lows near 112.485 yen.

The dollar's index against a basket of six major currencies stood at 100.37, after hitting a six-week low of 100.02 on Monday.

The euro traded at US$1.0737, off Friday's high of US$1.07825, which was its highest level since early February.

The spectre of slower US rate hikes has been helping high-yielding currencies.

The Australian dollar traded at US$0.7725, after hitting a 4-1/2-month high of US$0.7748 on Monday. It has risen 2.2 per cent since the Fed's policy meeting last week.

The South African rand has gained 4.0 per cent since then to a near 1-1/2-year high while the Brazilian real rose 3.2 per cent.

Oil prices stayed under pressure, though they hovered above their 3-1/2-month lows touched a week ago, as investors continue to grapple with worries about growing U.S. oil output and high inventories.

Brent crude futures settled at US$51.62 a barrel on Monday, down 14 cents but above last week's low of US$50.25.

US crude futures traded at US$48.30 per barrel in early Asian trade, up slightly from late US levels but down 1.1 per cent so far this week.