Asian stocks start new quarter on firm footing but bonds under pressure

Pedestrians walking in front of a display flashing numbers of the Nikkei key index of the Tokyo Stock Exchange in Tokyo.
Pedestrians walking in front of a display flashing numbers of the Nikkei key index of the Tokyo Stock Exchange in Tokyo.PHOTO: AFP

TOKYO (REUTERS) - Asian stocks held two-years highs on Monday (July 3), starting the third quarter on a solid footing after two quarters of gains, while expectations of credit tightening by the world's central banks kept global bond markets under pressure.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 per cent, staying within a stone's throw of its two-year peak hit last week.

Japan's Nikkei ticked up 0.2 per cent while US stock futures gained 0.2 per cent.

"Global share markets have so far withstood rises in long-term bond yields," said Sumitomo Mitsui Asset Management senior strategist Masahiro Ichikawa.

Signs of stabilising in China's economy and a recovery in the European economy helped to boost global share prices in the first half of this year.

Against this backdrop, on Wall Street, the S&P 500 scored its biggest gain for the first half of the year since 2013, while the Nasdaq Composite's first-half gain was its best in eight years.

Signs of steady economic recovery, however, have prompted some of the world's central banks to drop hints that their monetary policies could be tightened in the coming months.

Global bond yields have risen sharply following comments from European Central Bank (ECB) president Mario Draghi last Tuesday, with German bond yields last week posting their biggest weekly jump since December 2015.

That helped to lift US bond yields from lows, with the 10-year US Treasuries yield hitting a 1 1/2-month high of 2.320 per cent on Monday.

The rise came even as data showed US inflation cooled in May. The annual rise in core consumer prices, excluding food and energy, slowed to 1.4 per cent, its lowest since December 2015.

"In the coming weeks, whether we can see a recovery in the US momentum will be a key issue," said Daiwa Securities chief global strategist Hirokazu Kabeya.

In the currency market, the euro traded at US$1.1423, not far from last week's high of US$1.1445, which was its highest level in more than a year, as the common currency drew support from expectations that the ECB will likely scale back its stimulus.

The dollar traded at 112.30 yen, off Thursday's six-week high of 112.93.

The yen briefly gained on worries that Japanese Prime Minister Shinzo Abe's reflationary policies may be at risk after his Liberal Democratic Party suffered a historic defeat in a local election in Tokyo on Sunday, though the impact did not last long.

The Bank of Japan's tankan corporate survey showed that Japanese business sentiment improved slightly more than expected, though there was no market reaction.

Oil prices held firm after having gained for seven consecutive sessions by Friday, drawing support from a decrease in the US rig count and stronger demand data from China.

Brent crude futures rose 0.3 per cent to US$48.90 per barrel while US crude futures gained 0.5 per cent to US$46.26 per barrel.

In the Middle East, Qatari shares slumped to 1 1/2-year lows on Sunday as a deadline for Doha to accept a series of political demands by four Arab states was expected to expire late in the day with no sign of the crisis ending.

Saudi Arabia and three allies accusing Qatar of supporting terrorism have agreed to a request by Kuwait to extend by 48 hours Sunday's deadline for Doha to comply, according to a joint statement on Saudi state news agency SPA.