Asian shares drift higher as euro recovers from 12-year low

Asian shares drifted higher on Monday after a downbeat session on Wall Street kept sentiment in check, while the euro recovered from a fresh 12-year low touched on the divergent monetary policy paths between the United States and the euro zone.

Financial spreadbetters expected a stronger day ahead in Europe, with Britain’s FTSE 100 seen opening 26 points higher, or up 0.4 per cent; Germany’s DAX likely to open 61 to 63 points higher, or up 0.5 per cent; and France’s CAC 40 called opening 15 to 20 points higher, or up 0.4 per cent. “European markets, with the exception of the FTSE100, continued to be juiced by the European Central Bank’s easy monetary policy, which started last Monday, with bond yields continuing to decline to record lows,” Michael Hewson, chief market analyst at CMC Markets, said in a note.

Oil prices continued to tumble, with US crude dropping more than 2 per cent at one point to a six-year low amid oversupply fears. The International Energy Agency said on Friday that the global supply glut is growing and US production shows no sign of slowing.

US crude shed about 1.2 per cent to $44.31 a barrel, while Brent crude lost about 0.6 percent to $54.32. MSCI’s broadest index of Asia-Pacific shares outside Japan was a few ticks higher, erasing early losses and remaining above last week’s seven-week trough.

Chinese shares outperformed, rising to five-year-highs, with the CSI300 index and the Shanghai Composite Index both up more than 2 percent after Premier Li Keqiang said that Beijing had plenty of scope to adjust policies in order to boost the world's second largest economy. ID:nL3N0WH04H] "Investors have nothing to fear now because the message is that if economic growth continues to slow, there will be more stimulus measures," said Tian Weidong, analyst at Kaiyuan Securities in Xi'an in northwest China. Friday's weak U.S. inflation data failed to derail expectations that the Federal Reserve will tighten monetary policy, and US shares slumped on concerns about the impact of higher rates and a stronger dollar on corporate profits.

The S&P 500 marked its third straight losing week, though it stood just 3 per cent below its record high set early this month. Investors’ main focus this week is on the Fed’s two-day meeting beginning on Tuesday. After successive months of strong jobs data, expectations have been growing that the Fed will point towards a June rate rise by dropping a pledge to be “patient” in considering such a move.

Data on Friday showed that US producer prices fell in February for a fourth straight month, pointing to tame inflation that suggests the central bank has scope to hold off. Japan’s Nikkei stock average ended slightly down after notching a fresh 15-year intraday high on Monday and logging its fifth straight winning week. The Bank of Japan will announce its latest policy decision on Tuesday, a day before the Fed, and is widely expected to maintain its aggressive quantitative and qualitative asset-buying programme to stoke growth and sustainable inflation of 2 per cent.

“Rises in bank and other domestic demand-oriented shares symbolises an improved confidence that the economy is getting out of deflation,” said Takashi Hiroki, chief strategist at Monex Securities in Tokyo.

Dollar down but close to highs

The dollar took a breather from its recent rally, but remained close to multi-year highs. The euro slipped as low as $1.0457 early in the Asian session, its lowest since January 2003, but then rebounded to $1.0528, up about 0.3 percent on the day. Still, the euro has lost roughly a quarter of its value versus the dollar since around the middle of 2014. It suffered its biggest weekly fall since September 2011 last week, shedding 3.2 per cent as the European Central Bank launched its €1.1 trillion bond-buying stimulus program.

Goldman Sachs now expects the euro to slide to $0.80 by the end of 2017. Against the yen, the euro edged up about 0.2 per cent to 127.60, but remained not far from a 21-month trough of 126.86 set on Friday.

The dollar index lost ground due to the euro’s retracement, losing about 0.4 per cent to stand at 99.947, but staying near its 12-year high of 100.420. Against its Japanese counterpart, the dollar shed about 0.2 per cent on the day to 121.23, but was still not far from a nearly eight-year high of 122.04 hit on Tuesday.