Asian stocks gained a major boost on Monday following growing confidence that the US Federal Reserve will be raising interest rates next month.The boost helped the Dollar to cement gains made but also piled pressure on the prices of commodities in turn hurting energy and mining companies.Wall Street shook off the horror of terrorist attacks in Mali and Paris to cap its best week all year last Friday, driven by expectations that the Federal Reserve has enough confidence with the world’s top economy as to raise borrowing rates in December.
The looming prospects of raising interest rates in the US, the first in almost a decade, helped to boost the greenback. However, energy prices and raw materials were dragged down as a stronger dollar rendered the commodities more expensive for international traders. Bonds and stocks were square in the firing line too as the dollar pushed to a seven-month high, with industrial metals taking a plunge while oil prices teetered. In Europe, the Euro whipsawed to a low of $1.06 as a security lock down in Brussels compounded any prospects of more policy easing by the European Central Bank [ECB].
The dollar jumped to a high against a host of six major currencies, most especially the Euro. ECB President Mario Draghi had indicated on Friday that they are ready to act quickly in order to boost inflation in the Euro zone, suggesting the bank might announce easing of policy during its next meeting on December 3rd.
Investors and analysts however say the emerging Asian markets are unlikely to find support from the European stimulus as the easing will mainly lift the greenback. As KhoonGoh, senior FX strategist for ANZ in Singapore observed, “Expect Asian currencies to further weaken on the back of a stronger US Dollar.”
While gold slipped for its second day in a row, copper was dawdling near its lowest point since 2009 and oil prices were falling, with American benchmark prices trading at around $41 per barrel.Following bullish remarks made by colleagues from St Louis on Friday, Fed president for San Francisco, John Williams, had fueled expectations within the financial markets of an interest rate hike this past weekend when he intimated that there was a “strong case” for a rise come December.
Williams’ comments “are quite consistent with expectations in the market that the ECB will roll out its stimulus efforts as the Fed delivers on its first rates hike in close to a decade come December,” intimated Philip Borkin, a senior economist with the ANZ Bank of Auckland. The Euro still slid for a second day even after ECB Chief Mario Draghi hinted about unleash the stimulus package that’s set to boost anemic inflation levels in the Euro zone. Drangi’s pledge to “do what we must” so as to boost prices has fuelled expectations that the bank could expand its easing policy after the Paris terror that have hit investor confidence within the Euro trading bloc.
Shares in Australia, Shanghai, South Korea and across Asia had experienced a bump in early deals Monday, even asthe share market in Tokyo closed for a public holiday.Material shares were however hit by the slide in the price of commodities, with international mining concern, BHP Billiton, shedding 2.4 percent in Sydney. The Chinese energy giant, Sinopec, also shed 1.4 percent in Hong Kong as Hong Kong’s benchmark index dipped in early trade led by a fall with major Chinese brokerage firm, Guotai Junan, after the company indicated that CEO and Chairman, Yim Fung was nowhere to be found. The company’s shares dropped by as much as 15 percent during trading on Monday morning, coming a day after the city in southern China went through its first elections since the massive pro-democracy protests last year.