Rally in Asia stocks builds; eyes on earnings

Oil prices also climbed on optimism about global growth, with US light crude aiming for a ninth straight session of rises, heading to $69 a barrel.

In addition to a steady flow of companies reporting results this week, including Exxon Mobil Corp and Honda Motor Co and Mitsubishi UFJ Financial Group, investors will also look out for US gross domestic product data for the second quarter, hoping for some indication that a second-half recovery is on track.

Japan’s Nikkei share average advanced 1.75% to its highest since 15 June, driven by shares of wireless carrier Softbank, which gained 3.8% after the Nikkei business daily said profit in the April-June period grew 20% from a year ago.

“Hopes for corporate earnings are helping shares extend the rally, while short-covering in stock futures is also giving them a lift," said Shinji Igarashi, equity manager of the sales department at Chuo Securities in Japan.

The MSCI index of Asia Pacific stocks outside Japan edged up 1.1% to the highest in 10 months, with strength in consumer stocks and the materials sector.

The index was at the highest since late September, having risen 67% since 9 March, when investors began to move back to equities from cash after a period of intense volatility spurred by the global financial crisis.

Hong Kong’s Hang Seng index was up 1%, with financial firms and property developers remaining darlings of the market.

As of last week, about 3-in-4 of the 184 companies in the S&P 500 index had reported quarterly results above expectations, largely due to earnings in the financial sector, Thomson Reuters data showed.

Oil prices looked set to flirt with the psychologically important $70 a barrel level after having spent almost all of July trading below it.

The seemingly unquenchable appetite for global equities along with US dollar weakness in the last few weeks has improved sentiment on crude, though some analysts wondered how long oil’s support would last.

“Oil’s rally has again been supported by external factors, such as positive macroeconomic data and rally in the equities markets, and those factors, along with the US dollar, should again set the tone for oil this week," said Toby Hassall, a commodities analyst at Commodities Warrants Australia.

“But considering how actual demand in the US is still quite weak, I think there is a downside risk for oil prices."

The ICE Futures US dollar index was largely steady on the day, though it remained within striking distance of a one-month intraday low reached last Thursday.

Though equity markets reflected few concerns among investors about diving further into riskier assets, which usually would weigh on the safe-haven dollar, positioning may be a factor preventing acute short-term weakness in the US currency.

Traders on the International Monetary Market doubled the value of their net short term position to $16.6 billion in the week to 21 July.

Such a quick buildup in bets against the dollar may mean the market is vulnerable to bouts of profit taking.

US Treasury yields were flat compared with late Friday in New York. The benchmark yield on the 10-year note was at 3.67% having bounced 35 basis points in the last two weeks as the global equity rally accelerated.

The relative calm in the market masked fears about how a record $115 billion in new supply will be received this week.

Fear over the expected $2 trillion in supply this year pushed up benchmark Treasury yields from historic lows in March when the Federal Reserve announced its $300 billion Treasury purchase program aimed at lowering interest rates and restoring growth.

Emerging market central banks and investors, so far, have basically mopped up the new supply, keeping yields contained.

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