Asian equities moved higher on Thursday, 22 November 2018, but the advance was modest as investors continued to weigh tighter U.S. monetary policy, trade tensions and signs that global growth is losing momentum.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.2 percent and was still holding up in November after three straight monthly declines. Even so, the index was on course for its worst annual performance since 2011, reflecting concern that corporate profits may be weakening.
Japan’s Nikkei gained 0.5 percent, while Australian shares rose 0.6 percent. In the United States overnight, the S&P 500 finished higher but near its session lows, and the Dow Jones Industrial Average surrendered earlier gains to end flat ahead of the Thanksgiving holiday.
ANZ analysts said sentiment remained shaky despite the improved tone in markets. They warned that as the effect of U.S. fiscal stimulus fades, the American economy could slow in the same way other major economies have.
The U.S. unemployment rate is at a 49-year low and the economy is expanding at a 3.5 percent annual rate, but many economists now expect a swelling federal deficit and trade protectionism to drag on growth by 2020.
ANZ also said markets are becoming less tolerant of bad news, whether it comes from trade disputes or credit conditions. The bank said volatility is likely to remain elevated unless global growth turns around.
The synchronized global expansion that began about two years earlier has now flattened out, with trade volumes still rising but at a slower pace. OECD leading indicators have also weakened since the start of the year, pointing to slower growth ahead in the United Kingdom and the euro area.
In currency markets, the U.S. dollar remained firm after the Federal Reserve kept tightening policy following the end of seven years of near-zero rates in December 2015. The Fed funds rate stood at 2.00 to 2.25 percent, and investors were expecting another increase in December 2018.
The dollar index was unchanged at 96.712, while the yen was little changed at 113.01 after two straight sessions of losses. Marios Hadjikyriacos, an analyst at XM.Com, described the greenback as an “all weather currency.”
“It can shine both in risk-off sessions given its status as the world’s reserve asset, and on risk-on days as wide yield differentials brighten its carry appeal,” he said.
Hadjikyriacos said the dollar was likely to end the year strongly, adding that it would probably take concrete evidence of a U.S. slowdown before markets priced out more rate hikes.
The euro strengthened to $1.1390 on hopes that Italy’s budget dispute could be resolved, even as the European Commission took its first step toward disciplining Italy over its deficit.
Oil prices also recovered after a steep sell-off. U.S. crude futures rose 4 cents to $54.65 after touching a one-year low of $52.77 on Tuesday. The rebound followed a jump of about $1 a barrel on Wednesday after U.S. government data showed strong demand for gasoline and diesel, although worries about rising crude supply remained.
Source: Reuters, published 22 November 2018.
