Sydney: Asian shares rose the most in seven weeks on Monday, driven higher by surprisingly strong China manufacturing data and hopes that super-easy US monetary policy will loosen even further this week. Investor demand for riskier assets was palpable across markets. Government bonds fell, commodity prices and currencies rose, and the US dollar plumbed a 15-year low against the yen.
Europe’s stock markets picked up Asia’s baton. The FTSEurofirst 300 rose 0.5% in opening deals, while the main indexes in Britain, Germany and France gained 0.5% to 0.8%.
A spike in the US dollar against the yen in early Asian trade stirred speculation that Tokyo had intervened to sell the yen. But the currency’s rise was brief, so traders quickly suspected the spike was caused by a trading glitch.
Still, investors were nervous that Japanese authorities might intervene soon given that the dollar was changing hands at ¥80.45, within spitting distance of its post-war record low of 79.75.
Surveys pointing to healthy manufacturing expansion in both China and India prompted the MSCI index of Asian shares outside Japan to rally 1.7% by early afternoon Asia time, its biggest gain in any single day since 13 September.
China’s manufacturing growth hit a six-month high in October, purchasing managers’ indexes showed, suggesting the world’s second-biggest economy was powering ahead even as the United States and most of Europe languished.
Investors expect the US Federal Reserve to give the US economy a shot in the arm on Wednesday with an injection of cash, a policy known as quantitative easing. Many expect the Fed to offer to buy $500 billion of Treasury debt over five months.
“Quantitative easing is what the market’s focused on. That’ll lift all boats,” said James Holt, a Sydney-based investment specialist at BlackRock, the world’s biggest fund manager.
The Fed risk encouraged investors to sell the US dollar and buy commodities, in part on the belief the move will fuel growth.
The US dollar index was under pressure at 76.838. A break below its 25 October low of 76.709 could herald more losses, analysts say.
The prospect of more dollar weakness made dollar-based commodities attractive. Spot silver jumped to 30-year peaks, palladium to nine-year highs, gold hit a two-week high and oil rose towards $82 a barrel.
“Sentiment is cautiously bullish before the Fed meeting,” said a gold dealer in Hong Kong. “People are still talking about the price target of $1,400.”
Commodity currencies joined the rally, led by the Australian and New Zealand dollars. The preference for risk saw buying demand in US and Japanese government bonds taper off.
Still, the performance in US Treasuries is by no means dismal this year, with U.S. two-year yields near a record low.
For all the economic growth in Asia, Japan is bucking the trend. Asia’s second-largest economy is struggling with deflation and growth is elusive.
A 13% rally in the yen this year against the dollar has weighed on the exports sector, a major driving force behind the economy.
The economic woes underlined a 0.5% fall in the Nikkei average on Monday. For the year, it is Asia’s worse performing stock market, having fallen 13% compared with an 11% rise in the MSCI ex-Japan index.
Starmine data shows Japanese stocks trade at a forward price-to-earnings ratio of 6.9 times, the lowest in Asia, and less than half of the 15 times in China and Indonesia.
To be sure, Japan is not alone. For the year, data from EPFR Global showed investors have pulled cash from European, Japanese and US share markets, with the US market worst hit. Emerging markets, on the other hand, have pulled in over $60 billion worth of funds.