Stocks extend new year’s rally on fresh Chinese stimulus, oil gains

Asian shares extended their New Year’s rally on Friday after Wall Street struck another record high on fresh Chinese stimulus while oil spiked after US move.

MSCI’s broadest index of Asia-Pacific shares outside Japan touched its highest point since June 15, 2018 in early trade, but later pared gains. It was last up 0.31%.

The index had finished at its highest close in more than 18 months on Thursday, lifted by a New Year’s Day announcement from China’s central bank that it would cut the amount of cash that banks must hold as reserves, releasing release around 800 billion yuan ($114.87 billion).

Against the backdrop of a thaw in trade relations between the United States and China, global markets have seen renewed appetite for risk assets.

“You have from both a policy and trade perspective a favourable framework for... risk assets for the weeks to come,” said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong.

“The issue in our view, and that is the central scenario, is beyond these few weeks - where could we see a further correction?” he said, noting that the United States is unlikely to enjoy further fiscal stimulus before the presidential election in November.

The news sent oil prices surging, with global benchmark Brent crude shooting 1.74% higher to $67.40 per barrel and US West Texas Intermediate crude jumping 1.60% to $62.16 per barrel.

Equity markets remained unfazed as investors took further support from data on Thursday showing factory activity in China continued to grow at a solid pace in December, and that business confidence improved.

South Korean factory activity also improved in December, returning to growth after seven straight months of contraction.

“The South Korea data, a bellwether for global trade and technology, shines a massive ray optimism confirming that the rebound in the world economy is taking place, which is being viewed in an extremely positive light by global investors,” Stephen Innes, strategist at AxiTrader, said in a note.

South Korean shares added 0.28% on Friday. China’s CSI300 index, one of the world’s best-performing indexes last year, was 0.15% higher. Australian shares added 0.97%.

Markets in Japan remain closed for a national holiday.

Overnight, Wall Street’s major indexes notched record highs in their first session of the decade. The Dow Jones Industrial Average rose 1.16% to 28,868.8. The S&P 500 gained 0.84% to 3,257.85 and the Nasdaq Composite added 1.33% to 9,092.19.

The more optimistic outlook for trade and expectations that US outperformance will gradually wane continued to depress the US dollar, which fell 0.42% against the yen to 108.11.

The greenback also fell against the euro, which added 0.03% to $1.1174.

The dollar index, which tracks the dollar against a basket of six major rivals, was down 0.11% at 96.735.

A weak dollar continued to burnish the value of gold, driving the precious metal 0.5% higher on the spot market to $1,536.54 per ounce.  Oil prices soared more than four per cent on Friday.  Brent surged 4.4 per cent to $69.16 and WTI jumped 4.3 per cent to $63.84 as investors grow increasingly worried about the effects of a possible flare-up in the tinderbox Middle East on supplies of the commodity. Both contracts later pared the gains but remained well up.

“This is more than just bloodying Iran’s nose,” said AxiTrader’s Stephen Innes. “This is an aggressive show of force and an outright provocation that could trigger another Middle East war.”

Oil prices saw a record surge in September after attacks on two Saudi Arabian facilities briefly slashed output in the world’s top exporter by half.

High-risk currencies retreated against the greenback, with South Korea’s won down 0.6 per cent, Australia’s dollar off 0.4 per cent and the South African rand down more than one per cent.

Equities were mixed, having been rallying for the second day of the year on China-US trade optimism.

Hong Kong fell 0.3 per cent, Shanghai ended down 0.1 per cent and Singapore retreated 0.7 per cent, while Mumbai eased 0.5 per cent.

But there were gains in Sydney, Seoul, Wellington, Manila and Taipei.

Regional energy firms were the big winners, with Santos surging more than two per cent in Sydney and while Hong Kong-listed PetroChina climbed more than three per cent.

Markets had all been well up before news of the strike, thanks to ongoing optimism fuelled by the China-US trade agreement, looser central bank monetary policies and easing Brexit worries.

“Investors are worried that the situation in Iran will worsen, since there could be some retaliation,” said Steven Leung at Mizuho Bank. “People will want to cut risk ahead of the weekend. Stocks have rallied a lot in the past month or so, so any bad news flow is a reason to take profit.”

Reuters