Thursday 02.10 GMT

Overview

Asian equities regained upward momentum after comments from Federal Reserve chair Janet Yellen gave wings to a broad recovery for the dollar, weakening regional currencies.

Hot topic

The dollar index, which measures the US currency against a basket of peers, was up 0.4 per cent after the Fed chair warned that if the US waited too long to continue raising rates, it risked a “nasty surprise”. Ms Yellen also said she expected the Fed to tighten monetary policy a few times each year until 2019.

Those assertions were enough for markets to fully shrug off comments earlier in the week from president-elect Donald Trump suggesting the dollar was too strong for US exporters to be competitive.

Capital Economics’ chief markets economist John Higgins said it was unlikely Mr Trump would be able to keep the US currency down for long, pointing to expected rate rises, lack of support from leaders abroad and the supportive impact of potential protectionist trade policies.

Renewed positive sentiment towards the dollar added to downward pressure on the pound, which was already in retreat and closed on Wednesday down 1.2 per cent. The UK currency was essentially flat in Asia trade at $1.2259.

Forex

Ms Yellen’s comments also further undercut the Japanese yen, which dropped 1.8 per cent against the dollar on Wednesday to ¥114.67, where it remained as Asian markets opened. The Australian dollar slipped another 0.1 per cent to $0.7501 after shedding 0.8 per cent the previous session.

The South Korean won dropped 1 per cent against the dollar to Won1,178.72, ending a two-day rally during which it strengthened 1.3 per cent.

China’s offshore renminbi was unchanged at Rmb6.8393 per dollar after dropping 0.6 per cent the previous day, while the more tightly regulated onshore rate weakened 0.3 per cent to Rmb6.8360.

Equities

Currency weakness propelled regional equities higher, with Japan in the lead. The broad Topix index and the Nikkei 225 were each up 1.1 per cent.

Shares in Toshiba fell as much as 13 per cent, however, after reports the loss in its US nuclear business would be larger than the ¥500bn ($4.4bn) previously estimated.

Australia’s S&P/ASX 200 was up 0.2 per cent, dipping slightly after worse than expected unemployment data. But shares in CSL jumped as much as 10.8 per cent after the biotechnology company raised profit guidance for the 2017 financial year.

In South Korea, shares in Samsung Electronics popped as much as 2.7 per cent higher after a court in Seoul declined to issue a warrant for the arrest of group heir and de facto leader Lee Jae-yong.

The greenback’s recovery did no favours for shares denominated in Hong Kong’s dollar-pegged currency, with the benchmark Hang Seng index dropping 0.4 per cent.

Fixed income

The dollar rally helped to bolster the yield, which moves inversely to price, on US 10-year Treasuries by 10 basis points on Wednesday, where it largely remained in Asia, marginally lower at 2.425 per cent.

Yields on sovereign bonds in the Asia-Pacific region climbed, with the 10-year Australian yield rising 9 basis points to 2.769 per cent, and the 10-year Japanese government bond yield adding 2 basis points to 0.070 per cent.

Commodities

Crude oil prices regained some composure in Asia after a choppy overnight session in which Brent crude closed down 2.8 per cent. The international benchmark gained 0.8 per cent to $54.37 a barrel on Thursday morning, while West Texas Intermediate, the US marker, was up 0.4 per cent at $51.47.

Gold slipped 0.4 per cent to $1,199.41 an ounce, heading for a second day of decline after Wednesday’s drop of 1.1 per cent that snapped a seven-day winning streak.

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