Asia shares rebound in sharp turnaround from Trump shock
SYDNEY/TOKYO: Asian shares rebounded on Thursday and the dollar firmed in a remarkable snapback from the shock of Republican Donald Trump's presidential victory, though the speed of the reversal left some market watchers scratching their heads.
The Nikkei duly recouped all of Wednesday's 5 percent loss and more to trade up roughly 6 percent as the yen weakened following the previous session's surge.
MSCI's broadest index of Asia-Pacific shares outside Japan bounced 1.7 percent after dropping 2.4 percent on Wednesday as global markets plunged as Trump swept to power.
Australian stocks soared 3 percent in the largest daily gain since late 2011 and Shanghai rose 1 percent.
"An astonishing turnaround in risk appetite pushed equities and Treasury yields higher," said Imre Speizer, an economist at Westpac.
"Markets appeared to reassess the economic outlook under Trump, toward one of higher growth and higher inflation."
He noted that a key market barometer of 10-year inflation expectations had jumped to a 16-month peak of 1.87 percent.
Amid expectations of higher spending and inflation under Trump, yields on US Treasury 10-year notes reversed an initial plunge to 1.716 percent and bloated to 2.09 percent overnight, the highest since January.
The net rise of 21 basis points was the largest daily increase since July 2013.
Trump's key policy priorities include generous tax cuts and higher infrastructure and defense spending, along with deregulation for banks.
The dollar carved out a staggering range, rebounding along with the surge in US yields from as low as 101.19 yen all the way to 105.96 early on Thursday.
Helping boost the dollar, investors again revised the outlook for US interest rates in the wake of Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 80 percent.
The dollar index against major currencies recovered from a trough of 95.885 plumbed on Wednesday to around 98.448.
Having stretched as high as $1.1300 in the initial panic over Trump's win, the euro then slumped all the way to $1.0906 overnight - a move of roughly four cents.
The longer-term outlook for the dollar's weakening peers remained unclear, however.
"We expect a Trump Treasury to elevate the importance of the bilateral trade surplus with the US in identifying currency manipulators and intensify pressure on trade partners to allow currencies to appreciate," Tim Condon, an Singapore-based economist at ING, said in a report.
Meanwhile the action was no less noteworthy on Wall Street, where S&P 500 futures had shed 5 percent at one stage in Asian trade on Wednesday only to stand 1.1 percent higher late in the day.
The Dow jumped 1.4 percent, while the S&P 500 and the Nasdaq both added 1.11 percent. Trading volume was the highest since June, when Britain voted to abandon the European Union.
The CBOE Volatility index, a gauge of investor anxiety, fell 23 percent and was on track for its biggest daily drop since late June.
S&P futures were marginally lower in Asian trade on Thursday.
ASIA WARY ON TRADE, ALLIANCES
Ratings agency S&P Global later affirmed the AA+ rating of the United States, but noted uncertainty over the future path of government debt would prevent any upgrade.
There were also lingering concerns about whether Trump would follow through with threatened punitive tariffs on Chinese and Mexican exports, potentially triggering a global trade war.
Mexico's peso trimmed losses but was still within reach of a life-time low seen overnight.
"Further out, Trump's protectionist policies may prove another big step back in the gradual unwinding of goods globalization that has defined the past 30 years," wrote analysts at Nomura.
"Another important factor is that a Trump presidency would bring with it uncertainty that could undermine the Pax Americana, with all the benefits this has brought to the world in general and, perhaps, Asia in particular since 1945."
For now, investors seemed willing to give the president-elect the benefit of the doubt, as witnessed by a broad advance in bulk commodity prices.
Copper alone added 3.3 percent while iron ore surged 4.7 percent to its highest since January 2015.
Pulled down by a rise in US inventories, crude oil trimmed gains made overnight on the post-US election surge in global markets.
Brent crude was down 0.4 percent at $46.18 a barrel after rising 0.7 percent overnight. US crude dipped 0.4 percent to $46.17 a barrel.
Safe-haven gold pulled back sharply to $1,286.80 an ounce after rising to as high as $1,337.40 on Wednesday.