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Asia shares take a breather, hope for flexible Fed

Filed on August 27, 2020
A man wearing protective face mask, following an outbreak of the coronavirus disease, walks in front of a stock quotation board outside a brokerage in Tokyo. - Reuters

MSCI's broadest index of Asia-Pacific shares outside Japan turned flat after earlier reaching its highest since August 2018.

Asian shares touched two-year peaks on Thursday in the wake of Wall Street's record run as cheap cash drove up big-cap tech darlings, although Sino-US tensions caused caution to creep in as the session progressed.

MSCI's broadest index of Asia-Pacific shares outside Japan turned flat after earlier reaching its highest since August 2018.

Japan's Nikkei eased 0.4 per cent from levels not seen since mid-February, and South Korea fell 0.8 per cent as a jump in coronavirus cases ended four days of rises.

Even S&P 500 futures dipped 0.2 per cent, although that followed five straight sessions of gains.

Asian investors turned more circumspect because of the military face-off in the South China Sea, as Washington blacklisted 24 Chinese companies while Beijing reportedly test fired missiles into the area on Wednesday.

Yet markets globally are still focused on the endless liquidity being pumped out by central banks.

Federal Reserve Chair Jerome Powell is expected to outline a more flexible approach to policy on Thursday including a shift to targeting an average inflation rate around 2 per cent that will allow rates to stay super-low for longer.

"So with US-China tensions seemingly not a major concern, the deluge of fiscal and monetary support remains the overriding tail wind for risk assets with large cap the beneficiaries," said Rodrigo Catril, a senior FX strategist at NAB.

The Dow ended Wednesday up 0.3 per cent, while the S&P 500 climbed 1.02 per cent and the Nasdaq 1.73 per cent. Gains were again concentrated in the tech majors with Netflix Inc surging 11.6 per cent and Facebook Inc 8.2 per cent.

The liquid largesse from central banks has kept sovereign bonds well supported even as stocks reach new highs. Yields on 10-year Treasuries have steadied at 0.68 per cent, after finding solid bids around 0.73 per cent.

At the same time, the prospect of even more easing from the Fed has kept the dollar on the defensive. Against a basket of currencies, it was stuck at 92.921 on Thursday and uncomfortably close to the recent two-year trough of 92.124.

The euro held at $1.1832 and near its recent top of $1.1965, while the dollar backed off to 106.02 yen from a high of 106.57 earlier in the week.

The dollar has also been steadily trending lower on the Chinese yuan to reach depths not seen since mid-January at 6.885 yuan.

In commodity markets, gold eased back to $1,943 an ounce and remains short of its August peak of $2,072.

Oil prices were underpinned as US producers shut output in the Gulf of Mexico ahead of Hurricane Laura.

Brent crude futures edged up 5 cents to $45.69 a barrel, while US crude dipped 5 cents to $43.34.

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