File Picture: REUTERS/ALY SONG
File Picture: REUTERS/ALY SONG

Tokyo — Asian shares hit six-and-a-half month highs on Friday after upbeat US data and optimism in the tech sector lifted Wall Street stocks, helping calm some of the jitters sparked by the Federal Reserve’s cautious outlook on the world’s biggest economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3%, led by 0.5% gains in the info tech sector, while Japan’s Nikkei bucked the trend and lost 0.2%.

On Wall Street, the S&P 500 gained 1.09% while the Nasdaq Composite rallied 1.42%, both hitting five-month highs.

Apple led the tech sector’s advance, rising 3.7%, ahead of the company’s expected streaming service debut next week.

The Philadelphia SE Semiconductor index soared 3.5%, coming within a striking distance from its all-time high marked about a year ago.

“I’d think optimism in the tech sector is the biggest driver now. It reflects expectations that the US and China will eventually reach a trade deal,” said Soichiro Monji, senior economist at Daiwa SB Investments.

A US trade delegation headed by trade representative Robert Lighthizer and treasury secretary Steven Mnuchin will visit China on March 28-29, which will be followed by a trip by Chinese vice- premier Liu He to Washington in early April.

Thursday’s US economic data was also upbeat as initial claims for jobless benefits fell more than expected and mid-Atlantic factory activity rebounded sharply.

The figures mollified worries about the US economic outlook after the Fed on Wednesday surprised investors by adopting a sharp dovish stance, anticipating no further interest rate hikes this year and ending its balance sheet rolloffs.

The dollar also jumped back, with its index against a basket of six major currencies rising to 96.327 from Wednesday's one-and-a-half month low of 95.735.

The euro traded at $1.1374, flat on the day and off Wednesday’s one-and-a-half month high of $1.14485.

The dollar stood at ¥110.74, having hit a five-week low of 110.30 on Thursday.

The benchmark US 10-year notes yield stood at 2.530% after having slipped to as low as 2.500% on Thursday, its lowest since early January last year.

The five-year yield dropped to 2.34%, below the current Fed funds rate around 2.40%, as Fed funds rate futures price in about 50% chances of a rate cut this year.

“The main market reaction to the Fed’s announcement was that it has become a consensus that the Fed’s next move is a rate cut,” said Naoya Oshikubo, senior manager at Sumitomo Mitsui Trust Asset.

“As economic data from China and elsewhere has not bottomed out yet, investors will be looking at economic fundamentals for now. If there are improvements, then markets could roll back expectations of a Fed rate cut,” he said.

DoubleLine Capital CEO Jeffrey Gundlach, known as the Bond King, said on Thursday that the stock market “likes the fact that they [the Fed] aren’t going to give them any problems,” for now.

He added, however, the Fed’s cautious stance on raising rates could backfire by creating uncertainty in the economy and hurt the US central bank’s credibility.

Brexit concerns

Another cloud hanging over markets was Britain’s fraught moves to exit from the EU, as the British pound was bruised anew by rising worries about a no-deal Brexit.

EU leaders said Britain could leave the EU without a deal on April 12 if legislators fail next week to back Prime Minister Theresa May’s agreement with Brussels.

EU leaders gave May an extra two months, until May 22, to leave if she wins next week’s vote in parliament.

The pound traded at $1.3136, having dropped to $1.3004 the previous day. Against the euro, it hit a one-month low of 0.8722/€ on Thursday and last stood at 0.8664/€.

Oil dipped but held near 2019 highs reached the previous day, supported by a broad risk-on mood, Opec production cuts and US sanctions on key producers Iran and Venezuela.

Brent crude oil futures edged down 0.3% to $67.65 per barrel while US crude futures fell 0.3% to $59.81.

Reuters