Asian shares moved higher on Thursday, 22 November 2018, but the advance was modest as investors continued to weigh tighter U.S. monetary policy, trade friction and signs that global growth is losing momentum. Oil also recovered after a sharp drop, yet the broader tone across markets remained fragile.
MSCI’s broadest gauge of Asia-Pacific shares outside Japan added 0.2 percent and was still on course to finish November above water after three straight monthly declines. Even so, the index remained headed for its weakest year since 2011, reflecting concern over corporate earnings and the prolonged Sino-U.S. trade dispute.
Japan’s Nikkei gained 0.7 percent, while Australian stocks rose 0.6 percent. In the United States, the S&P 500 closed higher but near its lows for the session, and the Dow Jones Industrial Average ended flat ahead of the Thanksgiving holiday, a sign that risk appetite was still limited.
ANZ analysts said sentiment had improved slightly overnight, but they warned that markets were still vulnerable. They also said investors were increasingly focused on the possibility that fading U.S. fiscal stimulus could slow the American economy in the same way other major economies have cooled.
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 the combination of a ballooning federal budget deficit and trade protectionism to weigh on growth by 2020. ANZ said that backdrop leaves markets less willing to overlook bad news from either trade or credit markets.
The global expansion that began about two years earlier has now levelled off, according to the report, 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.
Dollar strength and Fed tightening remain in focus ¶
The Federal Reserve has stayed on its tightening path after ending seven years of near-zero interest rates in December 2015, lifting the fed funds rate to 2.00 to 2.25 percent. Investors were still expecting another increase in December 2018.
That policy shift has helped the U.S. dollar outperform most major currencies this year, with its index against a basket of peers up almost 5 percent. The Japanese yen was flat for 2018 at the time of the report.
Marios Hadjikyriacos, an analyst at XM.Com, described the greenback as an “all weather currency.” He said it can benefit in risk-off trading because of its role as the world’s reserve asset, while also drawing support on risk-on days from wider yield differentials.
Hadjikyriacos said the dollar looked likely to end the year strong, adding that it would probably take clear evidence of a U.S. slowdown to push expectations for more rate hikes lower and weaken the currency.
The dollar index was last unchanged at 96.697, while the yen was little changed at 113.07 after two straight sessions of losses. The euro also firmed to $1.1386 on hopes that Italy’s budget dispute could be resolved, even as the European Commission moved to begin disciplining Italy over its deficit.
Oil rebounds after U.S. demand data ¶
Oil prices bounced after U.S. government data showed strong demand for gasoline and diesel, although worries about rising crude supply did not disappear. U.S. crude futures rose 10 cents to $54.73 after touching a one-year low of $52.77 on Tuesday.
Brent crude opened firmer at $63.60, up 12 cents from the previous close and well above Tuesday’s low of $61.71.
Editing by Shri Navaratnam
