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Asian markets gain on US Fed governor's dovish comments on rate hike

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.6 per cent. Japan's Nikkei erased earlier gains to stand little changed as the yen advanced.

twitter-logoReuters | September 13, 2016 | Updated 09:37 IST
Asian markets gain on US Fed governor's dovish comments on rate hike
Photo: Reuters

Asian stocks rose on Tuesday, boosted as Wall Street rallied overnight after Federal Reserve governor Lael Brainard calmed markets with remarks that appeared to reduce the prospects of a near-term interest rate hike.

The dollar, on the other hand, nursed losses against its peers after Brainard reiterated her dovish views.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.6 per cent. Japan's Nikkei erased earlier gains to stand little changed as the yen advanced.

South Korea's Kospi rose 0.5 per cent and Australian stocks advanced 0.3 per cent. Hong Kong's Hang Seng rose 1.1 per cent and Shanghai was flat.

Reaction was limited to a run of Chinese data that included industrial output, which rose a better-than-expected 6.3 per cent in August.

While some investors had speculated that Brainard would switch over to the more hawkish camp, the Fed governor said Monday she wanted to see a stronger trend in US consumer spending and evidence of rising inflation before the Fed raises rates.

The comments solidified the view the US central bank would leave interest rates unchanged next week.

"We can stick with our main scenario that the Fed won't raise rates in September. All the talk about a possible rate hike in September turned out to be noise," said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank's Tokyo branch.

Future traders are now pricing in a 15 per cent chance of a hike at the Fed's Sept. 20-21 policy-setting meeting, down from 21 per cent earlier on Monday, according to the CME Group's FedWatch Tool.

US stocks racked up their strongest gain in two months on Monday, with the Dow rising 1.3 per cent and the S&P 500 gaining 1.5 per cent.

The dollar dipped 0.3 per cent to 101.580 yen JPY= after shedding 0.8 per cent overnight. The euro nudged up 0.1 per cent to $1.1238 while the dollar index .DXY stood little changed at 95.112 after losing about 0.2 per cent the previous day.

In the global bond market, the recent sharp rise in yields was halted for now after Brainard's comments. Yields had been rising as bond prices fell in the face of perceived limits to monetary policies of major central banks such as the European Central Bank and the Bank of Japan.

The benchmark 10-year US Treasury note yield US10YT=RR stood at 1.643 per cent after touching a 2-1/2 month high of 1.697 per cent earlier on Monday. The 30-year Japanese government bond JP30YTN=JBTC yielded 0.530 per cent, pulling away from a six-month peak of 0.565 per cent struck the previous day.

Crude oil prices dipped as investors sold into the previous day's gains and on concerns over increased drilling in the United States. Brent crude LCOc1 was down 0.6 per cent at $48.00 a barrel after rising 0.65 per cent overnight on a weaker dollar and stronger US equity markets.

Copper climbed off a 12-week low as US rate hike jitters subsided. Three-month copper on the London Metal Exchange edged up 0.2 per cent to $4,658 a tonne after plumbing $4,582 a tonne on Monday, the weakest since June 20.

Meanwhile, the markets pondered political developments in the United States and its potential financial implications.

"Hillary Clinton's September 11th medical episode and revelations of a recent pneumonia diagnosis may have pushed markets to begin taking a closer look at presidential candidate Donald Trump, whom markets appear to see as less predictable," said Andrew Meredith, co-managing director at Tyton Capital Advisors in Tokyo.

Presidential candidate Clinton almost collapsed at an event on Sunday, suffering from pneumonia, although she said on Monday she could resume presidential campaigning in a couple of days.

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