The dollar held gains, trading near the strongest since early January, having recouped most of the losses stemming from the Federal Reserve’s dovish pivot since the start of the year.
US futures added to gains as President Donald Trump spoke at a rally without casting any immediate shadow over a deal in principle among legislators to fund the government. With high-level trade talks looming, he also said he doesn’t want China to have a “hard time.”
The yuan stabilized onshore after a Monday drop. Hong Kong and Australian shares saw modest gains, while the Shanghai benchmark also rose, and European futures tipped a firmer open.
Japanese 10-year bond yields remained in negative territory even after the Bank of Japan (Bank of Japan) on Tuesday cut purchases of some longer-dated bonds for the first time since July in regular operation. The BOJ has sought to taper its purchases as it focuses on yield targets rather than quantitative easing.
The dollar has entered its longest rally since January 2016, recouping its year-to-date losses, as central banks around the world tilt more toward the dovish side, leaving the Fed’s shift to a patient stance on further monetary tightening as less of an outlier than it was weeks ago.
Meantime, investors are weighing the prospects for success of this week’s high-level US-China trade talks ahead of a March 1 deadline for higher tariffs.
“The trade talks are key,” Jason Vaillancourt, Putnam Investments global asset allocation co-head, said on Bloomberg TV. “If we can get a little bit of those growth engines starting to level out around the world, whether it be Japan or Europe, and just bottom out, then I think that will go a long way to putting a base under risky assets.”
Elsewhere, West Texas Intermediate crude rose after its lowest close in two weeks. The pound stayed lower after weak UK economic data.
These are the main moves in markets:
- India's Sensex index was trading marginally lower, while the Nifty index was marginally higher.
- The MSCI Asia Pacific Index rose 0.9% as of 12:28 PM Hong Kong time.
- Japan’s Topix index jumped 2.1%.
- Australia’s S&P/ASX 200 Index rose 0.3%.
- Hong Kong’s Hang Seng Index was up 0.2%.
- Shanghai Composite Index advanced 0.7%.
- S&P 500 futures rose 0.5%. The underlying gauge fell less than 0.1% overnight.
- The Japanese yen fell 0.2% to 110.60 per dollar. It dropped 0.6% in the previous session to the weakest in more than six weeks.
- The offshore yuan held at 6.7956 per dollar.
- The Bloomberg Dollar Spot Index was little changed after a 0.5% gain Monday.
- The euro traded at $1.1277.
- The British pound was at $1.2863.
- The yield on 10-year Treasuries rose more than two basis points to 2.68%.
- Australia’s 10-year bond yield rose almost five basis points to 2.11%.
- West Texas Intermediate crude rose 0.7% to $52.76 a barrel.
- Gold was stable at $1,308.35 an ounce.
Upcoming key events:
- Chinese Vice Premier Liu He expected to join US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in high-level trade talks Thursday and Friday.
- Earnings season continues with reports from companies including Michelin, Nissan, Cisco, Vivendi, Nvidia, Nestle, Coca-Cola, and Credit Suisse.
- Sweden’s Riksbank is expected to keep interest rates at minus 0.25% on Wednesday after the first increase in more than seven years in December.
- Data Wednesday is expected to show US consumer prices rose 0.1% in January, after falling 0.1% in December.
- If no deal is reached on the US-Mexico border wall, parts of the federal US government may shut down again later this week when stopgap government funding expires.