Picture: REUTERS
Picture: REUTERS

Singapore — Asian shares edged higher on Thursday, while the euro enjoyed some respite after hitting five-month lows a day earlier.

The common currency slumped on Wednesday following a report that Italian populist parties trying to form a coalition government could ask the European Central Bank to forgive €250bn of Italian debt.

In equity markets, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1%, while Japan’s Nikkei gained 0.7%.

The gains in Asian shares came after US equities advanced on Wednesday, led by retail and technology shares, even as a rise in US 10-year Treasury yields to an almost seven-year high suggested more competition for equities.

"In general, Asian equities are buffered from rising US yields by the constructive tone of the US-China trade talks as well as strong earnings numbers," said Heng Koon How, head of markets strategy for UOB in Singapore.

The US and China start trade talks on Thursday intended to avert a damaging tariff war, with the White House’s harshest China critic relegated to a supporting role, senior Trump administration officials said on Wednesday.

Shares of Chinese tech giant Tencent rose 5.2% in Hong Kong, having opened the day up 7% after it reported first-quarter results on Wednesday that were better than expected.

In currency markets, the euro rose 0.2% to $1.1825, regaining some composure after having set a five-month low of $1.1763 on Wednesday.

Concern about political risks jolted Italian markets and pressured the euro following reports that Italy’s anti-establishment 5-Star Movement and anti-immigrant League may ask the ECB to forgive €250bn of debt as the parties worked to draft a coalition programme.

That was enough to spook Italian markets, even though the League’s economic spokesman told Reuters that debt cancellation was never in an official draft of a government programme.

The two populist parties have been holding talks aimed at forming a coalition government and ending 10 weeks of stalemate following an inconclusive election on March 4.

On Wednesday, Italian stocks tumbled 2.3% while Italy’s 10-year bond yield jumped nearly 19 basis points to 2.13%. UOB’s Heng said the move in bond yields was not out of line with the recent rises in long-term bond yields seen globally.

Yields on 10-year US Treasuries hit 3.1% on Wednesday for the first time since July 2011, continuing to weigh on stocks as investors considered whether US government bonds might be more attractive than riskier equities.

The US 10-year Treasury yield set a fresh seven-year high of 3.108% in Asian trade on Thursday. It last stood near 3.104%.

The rises in US bond yields have helped buoy the dollar, which has gained 1.5% against a basket of six major currencies so far in May.

"If the market continues to trade off US yields and diverging economic data between the US and EU, it’s hard to argue against the current direction in yields or the dollar," Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, said in a note.

"On the US economic data front, the consumer remains the economy’s backbone, and if this robust trend in the retail space continues to build, factor in a bit of wage growth pressure and the dollar will continue to move higher on the back of higher yields," Innes said.

US bond yields have risen after data this week showed a solid rise in US retail sales, suggesting the US economy is on a stronger footing in the second quarter.

The dollar index eased 0.2% to 93.187. On Wednesday it touched a five-month high of 93.632.

Oil prices firmed on Thursday, with Brent crude creeping ever closer to $80 a barrel, a level not seen since November 2014, as supplies tighten while demand remains strong.

Brent crude futures gained 0.2% to $79.40 a barrel.