Hong Kong: Asian currencies and stocks rose and US Treasuries fell on Monday on expectations that China will allow the yuan to strengthen and break the currency’s 23-month-old peg, easing political tensions with the West and encouraging investors to take more risks.
All eyes will be on the Chinese central bank’s mid-point fixing at about 6:47am, which may hint at the pace of yuan strength from now on.
China’s central bank said late on Saturday it was ready to make the yuan more flexible, citing a global recovery and more balanced external trade. But on Sunday it ruled out a one-off move, said there was no basis for any big appreciation and added it will keep the exchange rate at a basically stable level.
Nevertheless, the apparent policy change in Beijing triggered a rally in riskier assets, with investors growing more confident about China’s key part in the global economy, despite Europe’s festering sovereign debt crisis.
Japan’s Nikkei share average jumped 1.6% to a one-month high, with China-linked stocks performing particularly well.
The MSCI index of Asia-Pacific stocks outside Japan was up 1.4%, led by the materials sector as a stronger yuan would give Chinese commodity buyers more purchasing power. The index has retraced more than half the losses incurred in the past two months as a result of European debt fears.
US stock futures were up 1.4%.
Emerging Asian currencies rose sharply. The dollar dropped 1.9% against the South Korean won in early trade
US Treasuries fell as cash was moved over to riskier plays. The benchmark yield on the 10-year note was up 5 basis points from late Friday in New York to 3.27%.
Commodities prices were rallying as well, on expectations China’s huge demand for raw materials would only increase. Brent crude futures were up 1.3% to $79.23 a barrel and US crude was up 1.3% to $78.20 a barrel both at the higest in a month.