Asian Stocks Bounce On US Cues Though Dollar Gains May Clip Wings

Hong Kong: Asian stocks edged higher on Monday, helped by a strong Wall Street, and the dollar stood tall against rivals after the latest U.S. payrolls data indicated strong underlying wage growth, strengthening the case for more rate increases in 2017. 

Underlying sentiment was increasingly cautious as investors grew wary of the corrosive effects of a stronger greenback on some Asian markets such as Hong Kong and before a news conference by President-elect Donald Trump on Wednesday where his views on global trade and China will be carefully scrutinised for future policy implications. 

MSCI's ex-Japan Asia-Pacific shares index rose 0.3 percent after posting a rare loss in the previous session. Australia's S&P/ASX200 rose 1 percent while Hong Kong shares rose 0.4 percent. Trading was light because Japan is shut for a holiday. 

"The dollar's rising strength will be a growing concern for Asian markets, particularly Hong Kong and investors will be waiting for Trump's comments to get some clues on what areas the new administration will focus on," said Alex Wong, a portfolio manager at Hong Kong-based Ample Capital. 

Foreign investors would be wary of buying local Hong Kong assets due to the Hong Kong dollar's three-decade long peg with the U.S. dollar, while the domestic business environment, particularly for retailers, would suffer more as local residents spend more abroad. 

Notwithstanding the growing worries around Trump's stance towards emerging markets on trade, 2017 has begun on a positive note in terms of capital flows for Asian markets, helped by an extended rally in U.S. equities. 

Combined investment flows into Asia were positive at nearly $600 million for the week ending 4th January, reversing outflows posted for the previous week, according to data compiled by Nomura analysts. 

U.S. stocks ended at record highs fuelled by optimism over Trump's plans to stimulate the economy with lower taxes and increased infrastructure spending. Both the Nasdaq and the S&P 500 ended at record highs. 

But with markets perched at record highs and valuations at the upper end of historical trading ranges, particularly in the U.S., market analysts are keenly aware that even a small disappointment from Trump's policy proposals could trigger a massive wave of profit-taking. 

In currencies, the dollar started the week on a firm note after Friday's data showed a rebound in U.S. wages pointing to sustained labour market momentum and more rate increases from the U.S. Federal Reserve. 

"With expectations of more rate hikes on the horizon, we believe the dollar will resume its upward trend versus emerging market Asia currencies in the coming weeks," Gao Qi, an FX strategist at ScotiaBank in Singapore wrote in a client note. 

The dollar was trading at 117.21 yen, nearly 2 percent above Friday's lows of around 115. It was steady at 102.20 against a basket of currencies China's yuan gained on Monday after Beijing fixed the daily official fixing stronger than market expectations and following weekend news showing foreign exchange reserves fell to near six-year lows as authorities stepped up their intervention to protect the currency. 

Bonds were stung by the strong U.S. data with both two-year and 10-year U.S. Treasury yields inching higher as market participants pondered the probability of more rate hikes in 2017. The yield on two-year U.S. Treasury notes was perched at 1.21 percent versus Thursday's low of 1.17 percent. Oil prices edged lower thanks to a stronger dollar and growing concerns over whether OPEC producers would stick to an agreement to cut output. Brent crude futures were down 0.3 percent in early trade.