Asian stocks reach 29-month top, China services surprisingly strong

SYDNEY: Asian shares notched a 29-month high on Monday as investors wagered monetary and fiscal policies globally would stay super stimulatory, while an upbeat reading on China’s service sector augured well for continued recovery there.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5% to reach its highest since March 2018, extending a 2.8% gain last week.

Chinese blue chips .CSI300 firmed 0.7% to reach levels not seen since mid-2015. Surveys showed Chinese manufacturing activity edged back a tick to 51.0 in July, but services jumping a full point to 55.2 in a hopeful sign of reviving consumer demand.

E-Mini futures for the S&P 500 ESc1 climbed another 0.5%, while EUROSTOXX 50 futures STXEc1 added 1%.

Tokyo’s Nikkei .N225 rallied 1.9% aided by news Warren Buffett’s Berkshire Hathaway (BRKa.N) had bought more than 5% stakes in each of the five leading Japanese trading companies.

The Nikkei had dipped on Friday after Prime Minister Shinzo Abe’s resignation stirred doubts about future fiscal and monetary stimulus policies.

Those concerns were eased somewhat by news Chief Cabinet Secretary Yoshihide Suga, and a close ally of Abe, would join the race to succeed his boss. A slimmed-down leadership contest is likely around Sept. 13 to 15.

Attention was now on a host of Federal Reserve officials that are set to speak this week, kicking off with Vice Chair Richard Clarida later Monday as they put more flesh on the bank’s new policy framework
Fed Chair Jerome Powell boosted stock markets last week by committing to keep inflation at 2% on average, allowing prices to run hotter to balance periods when they undershot.

The risk of higher inflation in the future, assuming the Fed can get it there, was enough to push up longer-term Treasury yields and sharply steepen the yield curve.

Yields on 30-year bonds US30YT=RR jumped almost 16 basis points last week and were last at 1.52%, 139 basis points above the two-year yield. The spread was now approaching the June gap of 146 basis points which was the largest since late 2017.

That shift was of little benefit to the U.S. dollar given the prospect of short rates staying super-low for longer, and the currency fell broadly.

Early Monday, the dollar index was off at 92.341 =USD and just a whisker above the recent two-year low of 92.127. The euro stood at $1.1902 EUR=, having climbed 0.9% last week.

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