Asian shares edged down on Friday but were on track for weekly gains, while the euro became more settled after the volatility seen in the wake of the European Central Bank’s decision to trim the size of its asset purchase program.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3 per cent, and was poised for a weekly gain of 1.9 per cent.
Financial spreadbetter IG CMC markets expect Britain’s FTSE to start the day unchanged, and Germany’s DAX and France’s CAC 40 to open modestly higher.
Japan’s Nikkei stock index ended 1.2 per cent up at its highest closing level since December 2015 – 3.1 per cent ahead for the week in which the dollar has so far gained 0.8 per cent against the yen.
The Nikkei earlier topped the 19,000-level for the first time in a year, as investors saw both the weak yen and prospects of US president-elect Donald Trump adopting reflationary policies benefiting Japan’s major exporters.
“The US market’s strength is giving a boost to Japanese shares,” said Eiji Kinouchi, chief technical analyst at Daiwa Securities.
Record highs
Major US stock indexes climbed again on Thursday and set fresh record highs as Wall Street continued its month-long rally following Trump’s election.
The dollar was up 0.4 per cent at 114.44 yen, moving back toward last week’s 10-month high of 114.83 yen.
The euro inched down slightly to $1.0615. It spiked as high $1.0875 before tumbling when markets realised the ECB’s actions were actually very dovish.
The ECB said it would reduce its monthly asset buys to €60 billion ($63.68 billion) as of April, from the current €80 billion, and extend purchases to December from March – three months longer than what some analysts had forecast.
That dragged down two-year yields across Europe and sharply steepened the yield curve, a gift for banks that typically borrow short maturities and lend long.
The promise of lower rates for longer was taken as a green light for carry trades, where investors borrow euros at cheap rates to invest in higher yielding currencies.
ECB President Mario Draghi said the unexpected move was not an outright winding-down of the central bank's quantitative easing (QE) program, and the central bank reserved the right to increase the size of purchases again if the eurozone economy falters.
The ECB’s bond purchase changes came less than a week before the Federal Reserve’s policy meeting next Tuesday and Wednesday.
Implied traders saw a 98 per cent chance the US central bank would raise interest rates by a quarter point next week, and about a 50 per cent chance it would raise rates by at least another quarter point by June 2017, according to CME Group’s FedWatch program.
‘Path of least resistance’
“We’re at a point in time between big announcements from a couple of the big central banks after the ECB, and looking forward to Fed next week, so the current momentum underway seems to be the path of least resistance at this point in time,” said Bill Northey, chief investment officer of the private client group at US Bank in Helena, Montana.
“We’ve come a long way, and I wouldn’t expect us to keep the same pace, but the trajectory might be correct” for dollar strength, he said.
The dollar index, which tracks the greenback against a basket of six major rival currencies, was steady on the day at 101.13, up 0.4 per cent for the week.
Oil built on its gains after rebounding overnight on growing optimism that non-OPEC producers might follow the cartel’s lead by agreeing to cut output.
US crude added 0.7 per cent to $51.18 a barrel. Brent crude rose 0.3 per cent to $54.06.
Spot gold was down slightly at $1,170.03 an ounce and was set for a weekly decline of about 0.6 per cent, pressured by the stronger US dollar and expectations that the Fed will raise interest rates next week.
– (Reuters)
