Thursday, November 4, 2010

GLOBAL MARKETS-Asia stocks, commodities climb after Fed

HONG KONG: Asian stocks rose to their highest levels since June 2008 and commodity prices rallied on Thursday, Nov 4 after the Federal Reserve's new bond-buying programme kept the hunt on for growth and higher yields.

Japanese equities rose 2 percent and led the region after fears of a much stronger yen in the wake of the Fed decision were eased by a moderate market reaction, prompting foreign investors to cover their bets against stocks.

After falling overnight, the U.S. dollar stabilised, with dealers hesitant to add to sizable bets against the currency after the euro touched a 10-month high, though traders pushed up copper and oil prices anyway.

There was still a plethora of events remaining this week that could inject volatility in asset markets, including policy meetings of the Bank of England, Bank of Japan and European Central Bank as well as the October U.S. payrolls report.

For Asia, after the Fed pledged to buy $600 billion of mostly mid-maturity Treasury debt, increased capital flows into the region will probably accelerate a process of reflation but also heighten the risk of more stringent capital controls.

"By undertaking more Treasury bond purchases, the hope is that risk appetite will provide the catalyst for people to spend, particularly corporates," Sean Darby, Asia strategist with Nomura in Hong Kong, said in a note.

"We expect Asian equities to remain well bid but the additional QE will raise the spectre of capital controls in ASEAN and parts of North Asia."

Japan's Nikkei share average was up 1.9 percent, with shares of big exporters among the biggest lifts to the index after the yen sold off overnight.

The MSCI index of Asia Pacific shares outside Japan edged up 0.8 percent, led by the commodity and TECHNOLOGY [] sectors.

Since September when speculation grew the Fed would have to print more cheap money and a chunk of those dollars would come to high-growth Asia, the index has risen 19 percent, exceeding returns on the MSCI all-country world index of 15 percent.

Hong Kong's stock market remained electric this week, with the Hang Seng up 1 percent on the day and extending gains so far this week to 5.6 percent compared with returns of 3.6 percent on the MSCI Asia Pacific ex-Japan index.

COPPER, CRUDE OIL GAIN

In currency markets, many dealers did not want to upset a weak U.S. dollar trend already in place before the Fed meeting, but quickly found other themes on which to trade.

The Canadian dollar was a big mover, with the U.S. dollar climbing 0.3 percent to C$1.0076 after the Canadian government surprised markets by blocking BHP Billiton's $39 billion bid for Potash Corp

The euro was at $1.4110 basically flat on the day, after hitting a high around $1.4175 on Wednesday.

Some investors were beginning to reassess the risks of keeping such negative bets on the dollar after the Fed decision was largely in line with expectations.

For example, fund managers at Edmond de Rothschild Asset Management said they were maintaining their short euro versus the dollar position after the Fed news.

"After rallying so strongly in the recent past, risky assets might inspire more caution. This would benefit the USD and provide overall protection for our positions," the firm said in a note.

Economic reflation trades were rampant in the commodities market, with three-month copper traded on the London Metal Exchange up 1.3 percent to $8,431.25 a tonne creeping back toward a two-year high reached last week.

Crude prices were poised for a fourth day of gains, up 0.7 percent on the day at $85.27 a barrel

Ten-year U.S. Treasury futures rose 0.5 percent to a one-month high while in the cash market, 5-year Treasury yields slipped 3 basis points to 1.08 percent, with 43 percent of the Fed's new plans for bond buying falling between 4 and 7 year maturities. - Reuters


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