Monday 03:55 BST. Asian equities started the year’s final quarter on a positive note, taking a positive lead from Wall Street as concerns about Deutsche Bank eased slightly.
The British pound was also garnering some attention after Theresa May, UK prime minister, said at the weekend that Britain would trigger Article 50, the official legal notification that would formally commence its exit from the EU, “no later than the end of March”. That sets the UK up to leave the EU by 2019.
The pound was the worst performer among major currencies, down 0.3 per cent in Asia at $1.2933, the lowest level in six weeks.
Data from the Commodity Futures Trading Commission showed that hedge funds nearly doubled their net short positions on the UK currency to $5bn in the week ended September 27 from the previous week, “as bearish sentiment towards sterling re-emerged,” ANZ Banking Group noted. That ended four straight weeks of net buying of the pound.
Equities were boosted after the S&P 500 climbed 0.8 per cent on Friday in New York, buoyed by reports that Deutsche Bank may face a smaller fine from the US Department of Justice than the $14bn settlement originally flagged. That initial estimate triggered wide concerns last week over the financial health of Germany’s biggest lender.
Japanese stocks were putting in a solid performance in spite of the Bank of Japan’s closely watched Tankan survey showing conditions for businesses were still soft and expected to deteriorate further in coming months, while the yen was weaker.
The broad Topix benchmark was up 1 per cent while the Nikkei 225 gained 1.1 per cent. The yen slipped 0.1 per cent to ¥101.45 per US dollar.
The Tankan showed conditions for large manufacturers were steady in the September quarter at an index reading of 6, and were expected to stay flat in the December quarter. Conditions for large non-manufacturers eased to 18 from 19 in the June quarter, and the index is expected to decline 2 index points over the next three months.
“Conditions in the manufacturing sector remained the weakest they have been seen the launch of QQE, while conditions in non-manufacturing continued to worsen. The survey therefore underlines that the Bank of Japan has more work to do to reach its 2 per cent inflation target,” said Marcel Thieliant at Capital Economics.
The stronger yen is one factor likely to keep pressure on businesses. Companies now forecast the currency to average ¥107.92 per dollar in 2016, compared to a forecast in June of ¥111.41. On Monday the yen was on track for its fifth straight day of decline against the greenback, having last week hit a one-month high of almost ¥100.
Despite the yen’s recent retreat, concerns linger about Japan’s efforts to stimulate the economy. A report from Moody’s Investor Services on Monday said Japan’s policy stimulus will support growth, although medium-term challenges remain.
However, Fitch Ratings said it thinks the BoJ’s latest stimulus measures, which include an attempt to control the yield curve, are unlikely to ease pressure on bank profitability, add to the risks faced by financial institutions, and could end up undermining efforts to boost the economy.
“The more complex these measures become, the greater the potential for unintended consequences, such as the impairment of the financial system’s role in the transmission of monetary policy,” Fitch said.
In Australia, the S&P/ASX 200 was up 0.8 per cent, while Hong Kong’s Hang Seng rose 1.3 per cent. Markets in China are closed for the week-long National Day holidays.
Elsewhere in currency markets, the euro was flat on Monday at $1.1231. The dollar index, a measure of the US currency against a basket of global peers, was up 0.1 per cent at 95.557.
Gold was edged up to $1,316.23 an ounce, attempting its first gain in five sessions.
Oil prices were weaker in Asia, letting off some steam after news last week that Opec had agreed to its first production cut since 2008 in an effort to rebalance global supply. Brent crude, the international benchmark, was down 0.5 per cent at $49.94 a barrel while West Texas Intermediate slipped 0.6 per cent to $47.96.
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