The US dollar held near 14-year peaks on Wednesday as global yield spreads moved inexorably in its favour, while a falling yen lifted Japanese shares to a one-year top. The Nikkei added 0.3 per cent in thin trade, while Australia’s main index climbed 0.6 per cent to its highest in 17 months after Wall Street racked up more records. Japan’s government upgraded its overall assessment of the economy on Wednesday, echoing a more upbeat view from the Bank of Japan’s delivered the day before.
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The dollar revelled in its rapidly widening yield premium, with the Federal Reserve set on a tightening course even as its peers in Europe and Japan act to keep their short-term rates deep in negative territory. The dollar index, which measures it against a basket of currencies, stood at 103.100 having touched 103.65, its highest since December 2002.
The US currency did run into scattered profit-taking as the session wore on which eased it back to 117.64 yen, but remained in sight of the recent peak at 118.66. The euro was a fraction firmer at $1.0413. On Wall Street, the Dow ended just 25 points shy of the magical 20,000 barrier helped by a 1.68 per cent gain in Goldman Sachs.
Stocks have been on a tear since the November 8 presidential election, with the Dow up 9 per cent and the S&P 500 6 per cent on bets that President-elect Donald Trump’s plans for deregulation and infrastructure spending might boost profits and growth. The Dow rose 0.46 per cent on Tuesday, while the S&P 500 gained 0.36 per cent and the Nasdaq 0.49 per cent. Eight of the 11 major S&P sectors rose, led by a 1.23 per cent jump in the financial index. After the bell, Nike rose 3 per cent on a strong quarterly report from the sports apparel seller.
European shares scaled 11-month highs on Tuesday as Italy’s banking index rose 2.3 per cent after the government decided to seek parliamentary approval to borrow 20 billion euros to underwrite the stability of its banks. Emerging markets have not been nearly as thrilled by Trump’s win, as the threat of tariffs has stirred fears of a trade war while rising US yields have attracted funds away.
Benchmark 10-year US yields have climbed almost 80 basis points since early November to reach 2.57 per cent. Data from the Institute for International Finance showed non-resident investors had pulled $23 billion from emerging market portfolios since early October. The outflows have triggered the longest continuous “reversal alert” since the organization began issuing the notice in 2005.
Chinese markets have also been unsettled by Beijing’s move to heighten supervision of shadow banking activities and on talk it may tighten liquidity to retard an outflow of capital. MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.3 per cent on Wednesday, but that followed a string of losses.
In commodity markets, oil prices nudged higher for a fourth session on expectations data due later in the day would show a US crude inventory draw. US crude futures were up 32 cents at $53.62 a barrel, while benchmark Brent crude futures added 26 cents to $55.61.Gold held at $1,133.80 an ounce as a firm US dollar kept it pinned near last week’s 10-1/2-month low of $1,122.35.