Asian stocks bounce; dollar, oil near recent highs

TOKYO/SYDNEY (Reuters) - Asian stocks bounced from near two-week lows on Tuesday as investors paused for breath following the heavy selling of recent sessions and waited to see if the dollar's rally was sustainable.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) was 0.2 percent higher, having hit its lowest level since April 9 following two straight days of declines. Japan's Nikkei (N225) rose 0.7 percent, helped by a decline yen which supports exporting firms.

Chinese shares climbed about 2 percent (CSI300) (SSEC), while Hong Kong's Hang Seng index (HSI) added 1 percent.

U.S. bond prices rebounded too, capping four days of falls that sent 10-year Treasury yields closer to the key psychological barrier of 3 percent - a level not seen since early 2014. (US10YT=RR)

The U.S. dollar, which has risen in the past five sessions against a basket of major currencies, also took a breather to camp near a four-month peak. (DXY)

"Investors are now watching closely to see if we are in the eye of the recent storm of volatility or if we do have calm seas ahead leading to stronger global growth," said Nick Twidale, Sydney-based chief operating officer at Rakuten Securities Australia.

"Only time will tell but certainly the market is keeping a close eye on the news wires and screens for anything that may lead to a return to volatility and downside risk."

The bond market is bracing for combined sales of $96 billion in coupon-bearing Treasuries this week on greater government borrowing following a massive tax overhaul last year and a two-year budget agreement reached in February.

Inflation worries are also mounting as oil and commodity prices have been rising in recent weeks.

Market gauge of investors' inflation expectations such as the 5-year forward inflation swap and 10-year breakeven yield have hit their highest levels in many months.

Investors are thus concerned U.S. inflation, long subdued since the financial crisis a decade ago, could gain momentum as President Donald Trump's tax cuts this year could stimulate an economy already near or at full employment.

That could prompt the U.S. Federal Reserve to raise rates more than three times this year, practically ending a decade-long liquidity party.

U.S. stocks were little changed on Monday as bond yield worries offset optimism on corporate earnings.

Analysts expect earnings growth at S&P 500 companies of nearly 20 percent in the first quarter, the strongest showing in seven years, according to Thomson Reuters data.

Of around 18 percent of the companies in the S&P 500 that have already reported, 78.2 percent beat consensus estimates.

METALS AND CURRENCIES

In currencies, the dollar was a shade firmer at 108.75 yen after jumping almost 1 percent on Monday to its highest in ten weeks.

The greenback also strengthened against emerging market currencies, hitting three-month highs against the South African rand and a 1-1/2-year top against the Brazilian real .

The euro held at $1.2210 (EUR=) after hitting its lowest since March 1 when Trump unveiled tariffs on imported steel and aluminium.

In commodities, aluminium extended losses after plunging 7 percent on Monday, its biggest one-day drop in eight years.

Three-month aluminium on the London Metal Exchange last stood at $2,272 per tonne after the United States extended the deadline for sanctions on Russian aluminium producer Rusal (HK:0486).

The metal had rallied to its highest since mid-2011 last week at $2,718 a tonne on fears of a global shortage as a result of the U.S. sanctions.

Oil prices held near 3-1/2-year peaks supported by production cuts by oil producing countries and wariness about geopolitical risks in the face of Washington's threat to scupper a nuclear deal with Iran.

Analysts see further gains in oil.

"Despite the rise in oil prices in recent weeks, the U.S. rig counts have not increased that much," said Tatsufumi Okoshi, senior commodity economist at Nomura Securities.

"Recent data shows oil inventories have been falling so I expect oil prices to rise further unless we see a sharp increase in U.S. oil drilling rigs."

U.S. West Texas Intermediate crude futures (CLc1) rose 30 cents to $68.95 per barrel, not far from last week's high of $69.56 while Brent crude futures (LCOc1) added 24 cents to $74.95 after having hit 3-1/2-year highs of $75.20.

Asian stocks bounce; dollar, oil near recent highs

Top 5 Things to Know in the Market on Thursday

 Here are the top five things you need to know in financial markets on Thursday, April 19:

1. Metals surge on sanction worries

Nickel was on a tear on Thursday, soaring 4%, on fears that U.S. sanctions on major Russian aluminum producer Rusal may be broadened and could hit key Russian nickel supplier Nornickel.

Worries over over tighter global supply for a commodity already in deficit have seen nickel jump 20% just this week, while aluminum, also up around 2% on Thursday, has racked up gains of more than 30% so far this month.

2. Oil hits 3 ½-year high ahead of OPEC meeting

Amid the broad surge in commodities seen Thursday, oil prices also hit their highest level since late 2014 while traders looked ahead to the outcome of the joint Organization of Petroleum Exporting Countries (OPEC) and non-OPEC ministerial monitoring committee meeting slated for later this week.

The committee may discuss new inventory targets that extend their output cuts beyond this year as they aim to eliminate a glut.

The gathering will play out against a backdrop of falling stockpiles and geopolitical tensions that have lifted prices.

U.S. crude oil futures rose 0.82% to $69.03 at 5:52AM ET (9:52GMT), while Brent oilgained 0.87% to $74.12.

3. Jobless Claims, Philly Fed Data, Fed Jawboning Looms

The Labor Department releases its weekly count of the number of individuals who filed for unemployment insurance for the week ended April 13, expected to show jobless claims fell to 230,000 from 233,000 the prior week. Continuing claims are forecast to fall to 1.848 million from 1.871 million the prior week.

The report on the labor market is due Thursday at 8:30AM ET, a day after the Federal Reserve’s Beige Book showed that tightness in the labor market has yet to boost wage growth pressure.

Also released at the same time, economists forecast the Philly Fed manufacturing index for April to show a reading of 20.8, slightly below the 22.3 reading seen in March.

Furthermore, traders will pay close attention to appearances by Fed governor Lael Brainard at 8:00AM ET (12:00GMT), fellow Fed governor Randal Quarles at 9:30AM ET (13:30GMT)and Cleveland Fed president Loretta Mester at 6:45PM ET (22:45GMT)

The Fed speeches are likely to be closely monitored after St. Louis Fed chief James Bullard warned that the yield curve could invert– a key predictor of a recession - within six months.

Traders are currently pricing in around a 95% chance of a rate hike in June, according to Investing.com’s Fed Rate Monitor Tool. Odds of a third rate hike by December was seen at about 85%.

4. Earnings will continue to be in focus

Earnings will continue to move stock prices with Wall Street set to trade good news as all six S&P 500 firms reporting after the prior session’s close beat estimates.

Of particular note, American Express (NYSE:AXP) looked set for solid gains after the blue chip credit card issuer’s profit topped consensus as record investments in card rewards and a strengthening U.S. economy contributed to higher customer spending.

First quarter earnings season is running smoothly with 83% of the 58 S&P companies that have reported beat both profit and sales estimates, according to The Earnings Scout.

On Thursday’s docket, Procter & Gamble, Bank of New York Mellon (NYSE:BK), BB&T (NYSE:BBT), Blackstone (NYSE:BX) and Philip Morris are among firms reported earnings.

5. Stocks set for weak open ahead of earnings, data

U.S. futures pointed to a slightly lower open on Thursday as investors waited for earnings and economic data to give direction for the day’s trade. At 5:54AM ET (9:54GMT), the blue-chip Dow futures was unchanged, S&P 500 futures slipped 3 points, or 0.09%, while the Nasdaq 100 futures edged down 3 points, or 0.04%.

Elsewhere, European shares were running out of steam following a two-day rally with most of the major bourses showing little change. A notable exception was the FTSE 100 trading up 0.2% as the commodity rally pushed up shares in mining giants and oil producers.

Earlier, Asian equities ended higher on the back of bullish sentiment in resource stocks.

Top 5 Things to Know in the Market on Thursday

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Top 5 Things to Know in the Market on Wednesday

Here are the top five things you need to know in financial markets on Wednesday, March 28:

1. Global stocks switch back to trade war jitters

Global stocks fell on Wednesday after Wall Street was knocked hard by concerns about tighter controls on the tech industry, denting a brief global equities recovery driven by hopes that the risk of a U.S.-China trade war was easing.

The tech sector was hit as market participants speculated with increased regulation over Facebook’s (NASDAQ:FB) debacle with protecting users’ privacy

Equities extended losses further after China's state-run Global Times reported the world’s second largest economy will soon announce a list of retaliatory tariffs on U.S. exports to China.

The news dashed traders’ hopes that trade tensions between the world’s two largest economies was easing. After the Dow skid more than 300 points a day earlier, U.S. futures pointed to a continuation of the selloff. At 5:54AM ET (9:54GMT), the blue-chip Dow futures fell 45 points, or 0.19%, S&P 500 futures lost 6 points, or 0.22%, while the Nasdaq 100 futures traded down 39 points, or 0.60%.

Elsewhere, Asian shares were infected by the tech selloff and rekindling of trade worries. Japan’s Nikkei 225 ended down 1.2%, while China’s Shanghai Composite skid 1.4%.

Tech firms also led European stocks lower in midday trading as persistent concerns over a regulatory crackdown on big tech and a string of negative headlines overnight hit sentiment towards the sector that drove a long bull market.

2. China preps retaliatory tariffs against U.S. imports

Just last Monday it had appeared that trade tensions between China and the U.S. had been simmering down and global stocks rallied.

However, concerns returned full force as the Chinese state run Global Times reportedthat Beijing would soon announce a full list of tariffs on U.S. imports to retaliate to planned U.S. levies.

Alarm over a possible trade war between the world's two largest economies has dampened risk sentiment as financial markets anticipated dire consequences should trade barriers go up due to Trump's bid to cut the U.S. deficit with China.

Markets are now waiting for the U.S. to publish a list of Chinese products that could be targeted with additional tariffs after a U.S. inquiry found China guilty of intellectual property theft and unfair trade.

3. GDP to focus attention on economic front

In a light day for economic references, the U.S. is to release final figures on fourth-quarter economic growth at 8:30AM ET (12:30GMT) Wednesday.

The data is expected to show that the economy expanded at a healthy 2.7% annual rate in the final three months of 2017, upwardly revised from a preliminary estimate of 2.5%. It grew by 3.2% in the third quarter.

Of note, this third reading is from the October to December 2017 period and is not expected to include the impact of Trump’s tax cuts.

Investors will also focus on housing market data on Wednesday as the National Association of Realtors publishes its pending home sales for the month of February at 10:00AM ET (14:00GMT).

4. Oil heads lower on bets for U.S. inventory build

Crude prices continued to track lower on Wednesday, amid speculation weekly supply data due later in the day will show a big buildup in U.S. oil supplies.

The U.S. Energy Information Administration will release its official weekly oil supplies report for the week ended March 23 at 10:30AM ET (14:30GMT), amid expectations for a draw of 287,000 barrels.

However, after markets closed Tuesday, the American Petroleum Institute said that U.S. oil inventories rose by 5.3 million barrels last week.

U.S. crude oil futures rose 1.03% to $64.38 at 5:55AM ET (9:55GMT), while Brent oiltraded down 0.82% to $68.89.

Despite Wednesday’s pullback, oil prices were still on track for monthly gains of around 5% as investors continue to keep an eye on geopolitical developments, evaluate escalating U.S. shale production and contemplate OPEC's push to extend the production curb agreement into 2019.

Elsewhere, in Asia, Shanghai crude oil futures saw their third day of trading continuing with high volume and volatile trading. Spot Shanghai crude futures sank almost 4%.

5. North Korea reportedly pledges denuclearization

China said Wednesday that North Korean leader Kim Jong Un had pledged to denuclearize the Korean peninsula during a meeting with Chinese President Xi Jinping, in exchange for a promise that the world’s second largest economy would uphold its friendship with its isolated neighbor.

Kim expressed an openness to U.S. talks during meetings with Chinese President Xi Jinping, the official Xinhua News Agency said Wednesday, in what was his first foreign trip since taking power in 2011.

Two days into the surprise visit which wasn’t confirmed by the North Korean and Chinese governments until Wednesday, Kim returned to Pyongyang, according to North Korean press which did not mention either the prospect of denuclearization or the potential Trump summit.

Top 5 Things to Know in the Market on Wednesday

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On China trade clash, Wall Street embraces Trump's poker face

To Wall Street money managers who make bets for a living, U.S. President Donald Trump's aggressive stance against China on trade looks like a high-stakes poker hand - but they believe they can play it for all it's worth.

Fears that Trump could set off a trade conflict have roiled Wall Street since March 1, when the president announced plans to impose tariffs on imported steel and aluminum, risking retaliation from major trade partners like China, Europe and neighboring Canada.

It's been a roller coaster ride, with markets slumping after Trump last Friday moved to impose up to $60 billion in tariffs on some Chinese imports and China declared plans to retaliate with duties of up to $3 billion of U.S. imports even as it urged the United States to "pull back from the brink."

China's willingness to negotiate spurred a rebound on Monday, though jitters in the tech sector drove markets back down on Tuesday.

Investors remain concerned about a trade war between the world's two largest economies, but some big players are sanguine about their prospects to make money even as they try and dissect Trump's strategy on trade.

The former celebrity businessman on March 2 tweeted, "trade wars are good, and easy to win," shocking economists who cite evidence that trade wars in the past have been destructive to economies involved.

"Other administrations have gone to trading partners like China and asked for a fairer deal, only to get a cigar put out on their forehead," said Steve Chiavarone, a portfolio manager at Federated Investors. "I suspect Trump's bucking of norms is absolutely part of his negotiating tactics."

Chiavarone and others said they remain confident the S&P 500 (SPX) will rise significantly this year.

"So far you are talking about small amounts of tariffs in niche sectors," said Phil Blancato, head of Ladenburg Thalmann Asset Management in New York. "For anyone who is looking for an opportunity to enter the market here at better valuations, this is it."

THE ART OF THE DEAL

"He has shown himself to act aggressively, quickly and unilaterally, and that's brought China to the negotiating table," said Ben Phillips, chief investment officer of EventShares exchange traded funds. "I truly think they are worried about him taking unilateral action and harming China's economy."

Fears of a trade war, which could hurt U.S. multinationals and dull the benefits of deep corporate tax cuts enacted this year, have helped push the S&P 500 down nearly 4 percent since the end of February.

The Trump administration has demanded that China immediately cut its $375 billion trade surplus with the United States by $100 billion, a position seen by some as an opening tactic in a long negotiation.

China could respond to U.S. measures with a range of tariffs aimed at U.S. multinationals, or even farmers in rural regions who helped Trump win the 2016 presidential election.

Trump's bellicose stance with U.S. trade partners reflects a negotiating style outlined in his 1987 book, "Trump: The Art of the Deal," said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York.

"You propose something horrific, and then when you pull back what you want is not as painful as feared," Pursche said. "The problem is the other side isn't dumb. Eventually, they're going to figure that out."

On China trade clash, Wall Street embraces Trump's poker face

Gold To Strongly Outperform Equities As U.S. Dollar Breaks Down

I could probably count on one hand the number of songs that for whatever reason, I might stomach on repeat indefinitely. For What It’s Worth – by Buffalo Springfield, is one of them. I say this, because the opening refrain from the more than 50-year young classic, “There’s something happening here/ What it is ain’t exactly clear,” has been rattling behind my thoughts over the past month or so as I consider a few key markets and the mounting opaqueness of the current macro environment. Somehow I’m sure Steven Stills would be immensely disillusioned with the connection, perhaps something along the lines of – “It’s a protest song, pal – not a meditation on markets.”

That being said, and for what it’s worth… this uncertainly is more typically the case when strategists contemplate late-cycle market dynamics – and likely even more so today in the wake of less conventional monetary and fiscal policy approaches that have clearly muddled future growth and inflation expectations over the past decade.

What I’m struggling with presently, is in light of the most recent and once again tepid inflation data through February, the reality remains that for all of their extraordinary efforts, central banks worldwide have had relatively marginal influence on raising inflation and real growth. This truth is becoming harder to disregard with each passing monthly report, because despite a US economy operating at or beyond full employment – and within a mature and now synchronized global expansion—inflationary pressures have yet to materially surprise to the upside.

Although markets became turbulent in February as attention turned to rates and the long-end of the curve, real yields also rose swiftly as growth and inflation expectations underwhelmed and were outstripped by nominal yields. Historically, real yields typically tend to rise with equities as growth expectations improve in the economy. While admittedly the window for interpretation is quite narrow and opaque, one could make the case that the opposite might be playing out today.

In fact, when we look back at the past two years where the Fed has moved off of ZIRP and away from the extraordinary policy accommodations extended after the global financial crisis, real yields and benchmarks of underlying financial conditions have broadly declined even as the Fed has raised rates—arguably, because inflation and growth expectations rose more.

Gold To Strongly Outperform Equities As U.S. Dollar Breaks Down

Risk Trades Roar But USD Suffering Continues

What a difference a weekend makes. Chinese Premier Li Keqiang promised China would open up further and eliminate technology transfers along with balanced trade. Signs of a concession towards the US sparked a massive reversal in risk trades and the biggest one-day rally in US equities since 2015.

The S&P 500 gained 70 points, or 2.7%, to 2658 in a jump from the 200-day moving average. FX wasn't quite as euphoric as yen crosses climbed around 1% but they weren't as negative on the way down either. The drop and reversal underscores how sensitive the market is to trade at the moment. It's overshadowing nearly everything else.

Despite a diminished threat of a trade war, the US dollar still suffered on most fronts. Technically, the euro broke above the March high to the best level since February 15. Cable climbed to the highest since February 1 and is approaching a cluster or resistance around the 2018 highs.

Risk Trades Roar But USD Suffering Continues

Stocks cheered by chance of trade detente, dollar downcast

 Asian share markets sprang higher on Tuesday as reports of behind-the-scenes talks between the United States and China rekindled hopes that a damaging trade war could be averted, in turn sapping life from the dollar and yen.

Taking a cue from Wall Street, Japan's Nikkei (N225) enjoyed its best day in almost three months, jumping 2.3 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) rose almost 1 percent, while China blue chips <.CSI3000> added 0.9 percent.

Futures for the FTSE (FFIc1) rose 1.2 percent and spread betters pointed to steep gains for other European bourses, while E-Mini futures for the S&P 500 (ESc1) firmed 0.3 percent.

The abrupt mood swing came amid reports Chinese and U.S. officials were busy negotiating to avert an all-out trade war.

White House officials are asking China to cut tariffs on imported cars, allow foreign majority ownership of financial services firms and buy more U.S.-made semiconductors, said a person familiar with the discussions.

Chinese Premier Li Keqiang on Monday pledged to maintain trade negotiations and ease access to American businesses.

"The recent escalation may have simply been a negotiating tactic that will end in a compromise," wrote analysts at JPMorgan (NYSE:JPM). "This would be consistent with the pattern around the steel/aluminum tariffs and is the interpretation that many market commentators are favoring."

Yet they warned it was too early to say for sure, given President Donald Trump has had deeply held views on fair trade for decades.

YEN RETREATS

Even a whiff of a deal was enough to propel Wall Street to its best day in 2-1/2 years and deliver the Dow its third-biggest point gain ever.

The Dow (DJI) jumped 2.84 percent, while the S&P 500 (SPX) climbed 2.72 percent and the Nasdaq (IXIC) 3.26 percent. (N)

The sudden bout of optimism helped offset news that the United States and many of its Allies were expelling more than 100 Russian diplomats in retaliation for a nerve agent attack on a former Russian spy in Britain.

The surge in stocks dragged on the Treasury market, which faces a record $294 billion of new supply this week. Yields on 10-year Treasury notes (US10YT=RR) inched up to 2.856 percent, but remained short of last week's top at 2.90 percent.

In currency markets the reaction was to offload both the yen and the U.S. dollar as appetite for riskier assets revived.

"The yen is being quietly sold as risk hedges are unwound and looks particularly vulnerable on the crosses," Citi analysts said in a note.

Short-covering against the euro was especially sharp as the common currency jumped 1.4 percent overnight (EURJPY=) to stand at 131.51 yen.

That allowed the U.S. dollar to bounce to 105.61 yen , having been at its lowest since late 2016 at one point. Yet the U.S. currency ran into selling against almost everything else, with notable breaks by the euro and sterling.

The euro was up at $1.2450 (EUR=), after cracking the March top at $1.2446, and bulls were eyeing the peak for the year so far at $1.2556.

The broad-based softness kept the dollar retrained against a basket of currencies at 89.063 (DXY), after touching a five-week trough of 88.979.

The improved mood on trade gave a fillip to industrial commodities, with copper and iron ore bouncing, while spot gold inched up to $1,353.61 an ounce.

In oil markets, U.S. crude futures (CLc1) put on 29 cents to $65.84 a barrel, while Brent crude (LCOc1) added 18 cents to $70.30 a barrel.

Stocks cheered by chance of trade detente, dollar downcast

Forex - Dollar Broadly Lower as Trade Fears Subside

 The dollar slid to one-month lows against a basket of the other major currencies on Monday as worries over trade tensions between the U.S. and China subsided and risk appetite recovered.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.26% to 88.87 by 09:02 AM ET (13:02 GMT), the lowest level since February 16.

The Wall Street Journal reported Monday that Beijing and Washington are negotiating behind the scenes to improve U.S. access to Chinese markets, after a week of threats over trade tariffs.

The report eased concerns over the prospect of a trade war between the two countries, which investors fear could hit growth in the U.S. and derail global growth.

The euro rose to two-and-half week highs against the dollar against the dollar, with EUR/USD up 0.4% to 1.2400.

The single currency was boosted after Jens Weidmann, Germany's likely candidate to become the European Central Bank's next president, said market expectations of a rate hike towards the middle of next year were "not completely unrealistic."

The dollar moved higher against the safe haven yen, with USD/JPY up 0.4% to 105.61 after falling to a 16-month low of 104.62 overnight.

In Japan, a growing cronyism scandal that has seen Prime Minister Shinzo Abe’s popularity plunge remained in focus ahead of parliamentary testimony by a central figure in the controversy on Tuesday.

The scandal has raised concerns over Abe’s ability to continue pursuing his Abenomics policies, which include aggressive monetary easing.

Meanwhile, the pound was higher against the dollar, with GBP/USD climbing 0.47% to 1.4196.

The Australian and New Zealand dollar also gained ground, with AUD/USD up 0.27% to 0.7719 and NZD/USD adding on 0.61% to trade at 0.7277.

Forex - Dollar Broadly Lower as Trade Fears Subside