Trade deal, easy monetary policy boost Asian stocks

HONG KONG, China – Agreement on a Pacific-wide free-trade agreement and hopes major central banks will maintain extra-loose monetary policies fired another rally in Asian markets Tuesday, October 6, tracking advances in Europe and New York.

The dollar was also lower against emerging markets currencies as analysts said last week’s disappointing US jobs report all but put a nail in the coffin of a US Federal Reserve (US Fed) interest rate hike this year.

In Hong Kong, shares in mining giant Glencore added to the previous day’s surge following reports it is in talks to sell its agriculture business as it battles weakening demand for raw materials.

But the main focus was on the Trans-Pacific Partnership (TPP), which will see the easing of a number of barriers, including to Japan’s closeted farm sector and the US car market.

After 5 years, trade representatives from 12 nations on the Pacific Rim said October 5 they had finally hammered out a deal to create the world’s biggest free trade area – encompassing 40% of the world economy. (READ: 12 Pacific countries seal huge free trade deal)

Japanese Prime Minister Shinzo Abe hailed a deal and expressed a hope that China would join at some point.

“It’s the opening of a new century for the Asia-Pacific region,” he said in a televised news conference Tuesday.

“If China participates in this system in the future, that will contribute to both Japan’s security and the stability of the Asia-Pacific region,” he added.

The accord also earned a strong endorsement from International Monetary Fund chief Christine Lagarde, who said it was “not only important because of the size. It also pushes the frontier of trade and investment in goods and services to new areas where gains can be significant.”

Analysts said the news would boost stocks in the region, adding to an already upbeat mood among investors.

Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, told Bloomberg News the TPP “has a lot of potential to become a big deal for the US and Japan.”

He added: “Concerns over the global economy had become ingrained in the market’s mindset. It’s possible that the TPP has triggered some regret over having sold too much.”

Dollar weakness

Confidence on Asia’s trading floors was already buoyant after October 2’s below-forecast US jobs numbers, which raised fears that the recent turmoil in global economies was filtering through to the world’s biggest.

The report also muddied the waters for the US Fed as it considers raising rates, with many experts saying its timeline for a hike before 2016 has likely been scuttled.

Japan’s central bank holds a 2-day policy meeting from Tuesday, with speculation it will widen its already vast stimulus program to try to reinvigorate the struggling economy, while its European counterpart is also considering further easing.

“Markets continue to believe that weak data will pressure central banks in Europe and Japan to provide more stimulus and will delay the US Fed in its pursuit to begin withdrawing monetary stimulus,” Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney said in a note to clients.

This “continues to have investors believe that asset prices can defy the weak growth environment.”

With the likelihood of a US rate rise receding the dollar weakened against higher-yielding, or riskier, units.

The Indonesia’s rupiah surged more than 2% against the greenback, while South Korea’s won was up 0.53% and the Australian dollar was 0.23% higher.

The Indian rupee, Taiwan dollar, and Malaysian ringgit were also up.

Equity markets advanced as risk-aversion eased.

Tokyo was 1.10% higher, Sydney gained 0.70%, and Seoul was 0.55% up. Shanghai was closed for a public holiday.

Hong Kong added 0.28%, with Glencore 5% higher. The firm added 17.76% Monday – having soared more than 70% at one point – on reports of the sale of its agribusiness.

Singapore’s sovereign wealth fund, Japanese trading house Mitsui & Co., and a Canadian pension fund are among potential buyers of the unit, Bloomberg News reported last week.

The agricultural unit could be worth $10 billion, according to research cited by Bloomberg News.

Shares in the Swiss-based firm swung wildly last week on fears that sinking commodity prices – caused by a growth slowdown in key market China – would affect its ability to meet outstanding debt obligations.

Shares in New York and Europe ended strongly. The Dow surged 1.85%, the S&P 500 climbed 1.83%, and the Nasdaq was up 1.56%.

London jumped 2.76%, Paris soared 3.54%, and Frankfurt gained 2.74%. – Rappler.com