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Asian markets build on rally as Hong Kong hits fresh record

Asian markets build on rally as Hong Kong hits fresh record

HONG KONG, Jan 18: The rally in Asian markets showed no signs of slowing on Thursday with most posting fresh gains and Hong Kong hitting new records as investors tracked another milestone on Wall Street, reports AFP. While some analysts are warning of a possible correction, traders remain bullish on equities thanks to a healthy economic outlook across the world, optimism over the impact of Donald trump’s tax cuts and strong corporate earnings. Attention Thursday is on the release later in the day of annual Chinese economic data, which will provide a fresh look at the world’s number two economy and key driver of global growth. Expectations are for a slight pick-up from 2016 following a string of impressive readings over the year. Hong Kong stocks climbed to a fresh record on Thursday as investors tracked another milestone on Wall Street but Asia-wide markets struggled to keep up the recent momentum. But while the afternoon saw a slight wobble across the region and some analysts warned of a possible correction, traders remain bullish on equities thanks to a healthy global economic outlook, optimism over the impact of Donald trump’s tax cuts and strong corporate earnings. Hong Kong rose 0.4 percent, holding above the 32,000 mark it broke in the morning for the first time in its history. The market has fallen only once in the past 17 trading days. Shanghai ended up 0.9 percent. After the market closed data showed the Chinese economy grew a forecast-beating 6.9 percent in 2017, the first annual improvement since 2010. Analysts surveyed by AFP had predicted 6.8 percent growth, which was better than the government target of around 6.5 percent. The GDP reading follows strong trade data last week, which showed the humming global economy had propelled China’s export machine. “This momentum, especially the part fuelled by external demand, may carry on well into 2018,” said Wei Yao, chief China economist at Societe Generale. Seoul was slightly higher, while Taipei, Bangkok and Jakarta also rose. However, Tokyo dipped 0.4 after a late sell-off on profit-taking but still sits at 26-year highs, while Sydney was marginally lower and Singapore shed 0.5 percent. Wellington and Manila were also down. A survey by Bank of America found fund managers were upbeat about the outlook and see equities continuing to rise into next year. And Lucy MacDonald, chief investment officer for global equities at Allianz Global Investors, told Bloomberg Television: “It’s time for relative caution but we’re still overall pro-equity.” However, she added that “nominal returns in markets are liable to be lower than they’ve been in the recent past”. There was also a word of caution from Joachim Fels at Pacific Investment Management, who said “the fact that the fear is gone is the main reason why we should be worried”. Traders started on the front foot after Apple said it will pay almost $40 billion in taxes to repatriate $350 billion following Trump’s tax cuts, adding that it will also boost jobs, hike wages and spend more on innovation. “This is exactly the encouragement that Trump’s tax policy constructed for. The move by Apple will influence and at the same time impose pressure on other multinationals to follow suit,” said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers. The pound held gains against the dollar after climbing Wednesday on comments from European Commission chief Jean-Claude Juncker that he would welcome any British attempt to rejoin the EU after it leaves. The remarks raised hopes Britain could exit on more favourable terms than have been expected and follow speculation about a possible second referendum. “Some smooth-talking from Jean-Claude Juncker helped propel the pound... as he appeared to not only suggest that the UK could come back after they leave but equally in the change of tone reflects that a ‘soft’ Brexit is now becoming a high probability,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader. Bitcoin climbed more than 10 percent to $11,000, according to Bloomberg data, a day after falling through the $10,000 mark for the first time since mid-December. In early European trade London was 0.1 percent higher, Paris rose 0.3 percent and Frankfurt added 0.5 percent. Meanwhile, Strong Chinese data on Thursday kept world stocks hovering near record highs, as bond markets pushed U.S. Treasury yields - the benchmark for global borrowing costs - to a 10-month high. Underlining the momentum of the world economic expansion into the back end of last year, both Chinese fourth quarter growth of 6.8 percent and December industrial output growth of 6.2 percent were ahead of expectations. Most Asian bourses were closing when the data landed but had briefly set a new an all-time record after the U.S. bluechip Dow Jones Industrial index had closed above 26,000 points for the first time. China’s yuan finished at its highest since December 2015. Europe’s main FTSE, Dax and CAC40 stock markets then ticked higher though moves were choppy in the cross currents of rising euro and bond yields. The 10-year U.S. Treasury yield hit its highest since March 2017 at 2.60 percent which then pushed the European counterparts higher. Germany’s 10-year bond yield, the benchmark for the region, was near a 5-1/2 month top at 0.52 percent. “The likelihood we have higher inflation data in the big economies is well over 50 percent so that is the next turning point for the markets,” SEB investment management’s global head of asset allocation Hans Peterson said. He added there were now two big questions. How will central banks respond and will the rise in bond yields happen at such a pace that it impacts optimism around assets like equities? “We are going to change the regime probably within the next 2-3 months,” he said. “Will it be accompanied by rising producer prices then we can live with higher bond yields, otherwise it is a problem for us.” The break higher in U.S. yields helped the dollar rise from a three-year low hit earlier in the day in Asia. The euro last stood at $1.2194, up 0.1 percent on the day but well below a peak of $1.2323 set on Wednesday, the euro’s strongest level since December 2014. A number of top ECB policymakers were due to speak in Frankfurt. Some may have been caught off guard by the speed of the euro’s appreciation, said Lee Jin Yang, macro research analyst for Aberdeen Standard Investments in Singapore. “Maybe they are trying to manage volatility or slow down the rise,” Lee said referring to Austria’s Ewald Nowotny who told reporters on Wednesday that the euro’s recent strength against the dollar was “not helpful.” Elsewhere, the Canadian dollar eased about 0.1 percent to C$1.2450, having see-sawed after the Bank of Canada raised interest rates but sounded a cautious tone on the future of the North American Free Trade Agreement (NAFTA). Emerging markets were gearing up meanwhile for a number of key interest rate meetings including in Turkey where last year’s 18 percent slump in the lira versus the euro has got inflation back in double digits. South Africa’s central bank also meets. After being sickly for much of 2017, a sounder political backdrop has seen the rand surge. It is one of the best performing currencies in the world so far this year, fuelling talk of a possible rate cut. “The South Africa meeting is the big show today. People are in it, they want to like it they want to own it,” said UBP’s EM macro and FX strategist Koon Chow. “So any dovishness or a cut would be another trigger for another leg higher.” The rising U.S. bond could cause turbulence for EM debt markets, however. As well as the gains for benchmark Treasuries, The two-year yield hovered at a nine-year high of just over 2 percent. “In emerging markets we are trained like dogs,” Chow said about the rising yields. “When we hear that bell ring we want to just run,” In commodities, crude oil prices rose earlier on data showing a decline in U.S. crude inventories and as rebels in Nigeria threatened to attack the country’s petroleum infrastructure, before trimming their gains.

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