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SYDNEY (Reuters) – Asian shares notched a fresh two-year high on Monday as investors wagered monetary and fiscal policies globally would stay super stimulatory for a protracted period, keeping the safe-haven dollar on the defensive.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.2% to reach its highest since June 2018, extending a 2.8% rise last week.
Tokyo’s Nikkei (N225) rallied 1.4% aided by news Warren Buffett’s Berkshire Hathaway (N:BRKa) had bought more than 5% stakes in each of the five leading Japanese trading companies.
The Nikkei had dipped on Friday after Prime Minister Shinzo Abe’s resignation stirred doubts about future fiscal and monetary stimulus policies.
Those concerns were eased somewhat by news Chief Cabinet Secretary Yoshihide Suga, and a close ally of Abe, would join the race to succeed his boss. A slimmed-down leadership contest is likely around Sept. 13 to 15.
The next event of note in Asia will be China’s official manufacturing PMI survey for August which is forecast to show a slight improvement to 51.2 as the recovery there continues.
The U.S. ISM manufacturing survey is also expected to show a continued pick up in activity in August, while August payrolls on Friday are forecast to rise 1.4 million with the unemployment rate dipping to a still painfully-high 9.8%.
A host of Federal Reserve officials are set to speak this week, kicking off with Vice Chair Richard Clarida later Monday as they put more flesh on the bank’s new policy framework
Fed Chair Jerome Powell boosted stock markets last week by committing to keep inflation at 2% on average, allowing prices to run hotter to balance periods when they undershot.
The risk of higher inflation in the future, assuming the Fed can get it there, was enough to push up longer-term Treasury yields and sharply steepen the yield curve.
Yields on 30-year bonds jumped almost 16 basis points last week to stand at 1.508%, 137 basis points above the two-year yield. The spread was now approaching the June gap of 146 basis points which was the largest since late 2017.
That shift was of little benefit to the U.S. dollar given the prospect of short rates staying super-low for longer, and the currency fell broadly.
Early Monday, the dollar index was down at 92.211 and just a whisker above the recent two-year low of 92.127. The euro edged higher to $1.1915 (EUR=), having climbed 0.9% last week.
Marshall Gittler, head of investment research at BDSwiss Group, noted speculators had already built up record levels of long positions in the euro which could work to limit further gains.
“A truly crowded trade that will take more news to push higher,” he argued.
The dollar did steady a little on the yen at 105.47 , after dropping 1.1% on Friday before finding support in the 105.10/20 zone.
In commodity markets, the drop in the dollar helped gold bounce to $1,974 an ounce.
Oil prices steadied, having dipped on Friday after Hurricane Laura passed the heart of the U.S. oil industry without causing any widespread damage.
Brent crude futures rose 15 cents to $45.96 a barrel, while U.S. crude gained 6 cents to $43.03.
