WELLINGTON/SINGAPORE (BLOOMBERG) - Asian stocks extended gains on Monday (Jan 25) bets central banks will come to the rescue of turbulent financial markets. Crude oil futures meanwhile extended gains following a surge at the end of last week on short-covering and fuel demand triggered by freezing weather, dubbed Snowzilla in the US.
Gains across the board in Asia saw the MSCI All-Country World Index embark on a third day of increases, after a 2 per cent jump in US shares on Friday contributed to the gauge's best day since June 2012.
The MSCI Asia Pacific Index gained 1.5 per cent as of 2 pm Tokyo time, after a 3.5 per cent surge on Friday trimmed its third straight weekly drop to 1.4 per cent. Japanese shares rose a second day, with the Topix index increasing 1.6 per cent to be set for its highest close since Jan. 15.
Energy producers and banks drove Australia's S&P/ASX 200 Index up 1.8 per cent following the revival in crude oil, while New Zealand's S&P/NZX 50 Index and the Kospi index in Seoul rose 0.9 per cent.
In Hong Kong, the Hang Seng and Hang Seng China Enterprises indexes were higher, rising 1.8 per cent and 1.3 per cent respectively. The Shanghai Composite Index climbed 1.1 per cent. The gauge, whose gyrations in the first proper week of trading this year sparked the global selloff, ended Friday up 1.3 per cent as China signaled it would curb overcapacity in industries such as coal that have been dragging down economic growth.
Futures on the S&P 500 were up 0.1 per cent on Monday.
European Central Bank President Mario Draghi gave markets a lift amid the worst start to a year on record for global stocks. His indication that stimulus could be boosted as soon as March, and speculation China could ease policy to soothe investors, fueled a surge across risk-asset classes at the end of last week, aided by oil's recovery. While Bank of Japan Governor Haruhiko Kuroda played down the impact of the recent gyrations, economists are predicting the Federal Reserve will hold fire on interest rates when it meets this week.
"There will be some waiting and seeing among policy makers until they know how this market volatility will affect the global economy," Michael McCarthy, chief strategist at CMC Markets in Sydney, said by phone. "Given the depression in the markets, there's scope for the market to add to Friday's gains. We've got a very eventful week, with the BOJ and Fed meetings, so there's a lot for investors to react to. Volatility is likely to continue."
Less certain is the longer-term outlook for risk assets globally, according to Philip Borkin, a senior economist in Auckland at ANZ Bank New Zealand Ltd.
"One of my colleagues put it quite aptly recently when he stated that financial markets were almost like a tantruming toddler, and that central banks have been attempting to console them by rewarding them with another toy," Borkin said in a client note Monday. "Any parent would tell you that that is hardly the way to encourage long-lasting good behavior. At some stage, particularly if real activity data are still hanging in there OK, some tough love is required."
The won led gains among Asian currencies, climbing 0.7 per cent to 1,192.35 per US dollar after jumping 1.1 per cent on Friday. It's headed for its biggest two-day gain since October before South Korea released economic growth numbers on Tuesday.
The yen, which typically moves at odds with Japanese stocks, was little changed at 118.74 per dollar following a 0.9 per cent decline on Friday that capped its first weekly drop in three weeks.
Governor Kuroda said in an interview with Bloomberg TV in Davos that the turbulence in financial markets hadn't affected corporate behavior "unduly." He did, however, emphasize that the central bank is "carefully" watching markets for any potential impact on the real economy.
Data released Monday showed Japan's annual trade deficit narrowed almost 80 percent in December from a record as the cost of energy imports dipped and weakness in the yen spurred some gains in exports. Economists expect the BOJ to keep stimulus at current levels later this week.
Brent had gained 39 cents or 1.21 per cent to US$32.57 a barrel by 0519 GMT, after touching US$32.69 a barrel earlier in the day. It settled at US$32.18 a barrel in the previous session. US crude rose 30 cents or 0.93 per cent to US$32.49 a barrel, compared with its session-high of US$32.64 and previous settlement at US$32.19.