While geopolitical tensions continue to linger after Donald Trump pulled out of the Iran nuclear pact this week, dealers were buoyed by the prospect of cheaper borrowing after data showed consumer prices edged up only slightly in April.
News that Trump and Kim Jong Un had agreed to meet on June 12 in Singapore — the first US-North Korean summit in history — lifted optimism and fuelled hopes for peace on the Korean peninsula.
The inflation data provided some relief to trading floors, which have fluctuated over recent months on worries that an improving US economy and an expected surge in inflation will force the Federal Reserve to tighten monetary policy.
“The market is breathing a sigh of relief that there was not an upside surprise to the inflation stats,” Peter Boockvar, the chief investment officer of Bleakley Financial Group, wrote in an email to clients. The news lifted all three main indexes on Wall Street and those gains extended into Asia.
Hong Kong rose one percent, marking a fifth-straight gain, while Tokyo ended 1.2 percent higher. Singapore climbed 0.8 percent and Seoul added 0.6 percent, while Wellington, Jakarta and Taipei also posted healthy gains.
Manila was 2.3 percent higher a day after data showed the economy expanded at a strong pace in the first three months of the year, and despite a central bank interest rate hike. However, Sydney finished marginally lower and Shanghai lost 0.4 percent.
Oil rally sputters
Greg McKenna, chief market strategist at AxiTrader, offered a word of caution, warning: “Sure, (consumer price) inflation didn’t surprise on the upside.
“But that doesn’t mean the Fed isn’t still going to raise rates two or three more times this year and it doesn’t mean quantitative tightening isn’t going to continue.”
Still, lower expectations for US rates hurt the dollar on Thursday and it struggled to recover in Asia with high-yielding currencies such as the Australian dollar, Mexican peso, Indonesian rupiah and South Korean won gaining ground. Even the pound held its own despite the Bank of England slashing its economic growth and inflation outlook.
Movements in the crude market were tepid after recent surges that came on the back of Trump’s Iran decision and data showing US demand for the commodity appeared to be picking up.
However, both main contracts remain around highs not seen since November 2014 and there is still talk of further rises to around $80 a barrel. An exchange of rockets between Israel and Iran was also keeping traders wary of a flare-up in the volatile Middle East, with the Syria crisis still raging.
In early European trade London and Frankfurt each rose 0.1 percent but Paris shed 0.2 percent.
Tokyo – Nikkei 225: UP 1.2 percent at 22,758.48 (close)
Hong Kong – Hang Seng: UP 1.0 percent at 31,122.06 (close)
Shanghai – Composite: DOWN 0.4 percent at 3,163.26 (close)
London – FTSE 100: UP 0.1 percent at 7,711.53
Oil – West Texas Intermediate: DOWN 17 cents at $71.19 per barrel
Oil – Brent North Sea: DOWN 31 cents at $77.16 per barrel
Euro/dollar: DOWN at $1.1902 from $1.1919 at 2100 GMT
Pound/dollar: UP at $1.3523 from $1.3516
Dollar/yen: DOWN at 109.40 yen from 109.42 yen
New York – Dow: UP 0.8 percent at 24,739.53 (close).
Published in Daily Times, May 12th 2018.