SINGAPORE: Asian stocks advanced on Friday as the Thanksgiving break in the United States helped slow a relentless surge in the dollar that has sucked capital out of most emerging markets.
The respite for Asian assets may be short-lived, however, with US Treasury yields resuming their climb after the holiday as investors bet that President-elect Trump will adopt policies that increase spending and debt, as well as spur higher growth and inflation.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.3 percent. It is poised to end the week 1.4 per cent higher, its biggest weekly gain in two months.
But it remains down almost 3 per cent from its close on Nov. 8 before Trump’s surprise election. His protectionist campaign promises are widely seen as negative for the region.
Emerging market stocks broadly have also taken a hit, with the MSCI Emerging Markets index down 0.4 per cent on Friday. Although the index is up 0.9 per cent for the week, it remains nearly 6 per cent below its November 8 close.
The dollar index, which tracks the greenback against a basket of six major global peers, was steady at 101.68 on Friday, down from its Thursday peak of 102.05, the highest level since March 2003.
The US currency has been on a tear since Trump’s win.
Strong US manufacturing and consumer data this week have bolstered the case for higher interest rates. The dollar index has risen 0.5 per cent this week, and almost 4 per cent since November 8.
“The trend is likely to remain with the US Fed poised to strike in Dec and market positioning for US President-elect Trump to fulfil his fiscal and tax cut plans,” Singapore-based UOB Group’s global economics and markets research team wrote in a note Friday.
The expectations are triggering a dramatic surge in bond yields, which is pulling capital out of emerging markets.
The two-year US Treasury yield jumped to a 6-1/2-year high of 1.1630 per cent on Friday. It was at 1.1625 per cent as of 0302 GMT.
The 10-year yield, which hit a 16-month high of 2.417 per cent this week, was at 2.4057 on Friday.
The dollar’s strength on the back of rising yields has pummeled other currencies.
It climbed to an eight-month high versus the yen on Friday, and was up 0.3 per cent from Thursday’s close at 113.67 yen on Friday. It has gained 2.5 per cent this week.
That has proved a boon for Japanese stocks, with the Nikkei 225 advancing 0.8 per cent on Friday to the highest level since January. It is on track for a weekly gain of 2.8 per cent, and is up 7.6 per cent since before the US election.
Analysts also expect Japanese consumer prices, which fell for their eighth straight month in October, to rebound as the weaker yen pushes up import costs.
The dollar’s surge and nervousness ahead of Italy’s constitutional referendum on December 4 have weighed on the euro.
The common currency slumped to the lowest level since March 2015 against the dollar on Thursday. It recovered 0.2 per cent to $1.05685 on Friday.
Wall Street was closed on Thursday for the Thanksgiving holiday and trading will end early on Friday.
European stocks ended on a positive note, with the Stoxx 600 index gaining 0.3 per cent at the close.
Oil prices were mostly steady as investors looked to next week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) for clarity on proposed output caps.
“While US assets are exploring strange new worlds, commodities, specifically crude oil and gold prices, remained relatively flat into the end of the week,” Jingyi Pan, market strategist at IG in Singapore, wrote in a note.
“Consolidation ahead of major events are no surprise and we are expecting this with what could be reckoned as the most important event of the year for crude oil prices next week – the November 30 OPEC meeting.”
US crude futures were flat at $47.92, set to clock a weekly increase of 5 per cent, building on last week’s 5.3 per cent jump.
Global benchmark Brent crude slipped 0.1 per cent to $48.93, on track for a weekly gain of 4.4 per cent.
Gold remained under pressure, retreating 0.6 per cent to $1,176.06 an ounce on Friday, down 2.6 per cent this week.
It has plunged a whopping 7.7 per cent since its close before the US election results were announced.