Tokyo equals record run as Asia markets, dollar rally on tax hope

AFP: Asian and European markets rose yesterday, with Japan’s Nikkei clocking up a record-equalling 14 straight wins, while the dollar also rallied on hopes for Donald Trump’s tax cut plans.

A succession of strong earnings and economic indicators has fuelled optimism on trading floors in recent weeks, with Wall Street’s three main indexes continuously hitting records. However, there is chatter that it might be time to take a breather after a global rally in recent months with a number of key issues on the horizon including the choice of a new Federal Reserve boss, Brexit talks and the 
Catalan crisis. 

Treasury chief Steven Mnuchin said this week that markets could see a correction if US lawmakers fail to pass the president’s tax-cut measures, while People’s Bank of China governor Zhou Xiaochuan warned of “excessive optimism” and a possible plunge in prices.

But Trump’s promise to pass the legislation moved a step closer late Thursday when senators agreed a budget resolution that unlocks a procedure allowing Republicans to push through such measures without the need for Democrat help.

Trump hailed the vote as “an important step in advancing the administration’s pro-growth and pro-jobs legislative agenda”.

Expectations the tycoon’s tax cuts and big spending plans would boost the economy were one of the drivers of a months-long global markets rally that kicked off after his November election, though a series of White House crises and legislative setbacks pared those gains.

While the controversial proposals still have a long way to go before being passed, the news spurred Asian markets to life after a plodding start to the day, while the dollar strengthened against the yen, euro and pound.

“The budget still has to also pass the House, but near term, it should be supportive for the dollar,” Shinichiro Kadota, a senior foreign-exchange strategist at Barclays Securities Japan in Tokyo, told Bloomberg News.

“Senate passage of budget was a step required for budget reconciliation to advance tax reform.”
And Stephen Innes, head of Asia-Pacific trading at OANDA, said: “It’s likely not too late to jump on this party bandwagon as global equity markets continue ratcheting higher... or the Trump trade bandwagon for that matter.”

Tokyo ended marginally higher as a weaker yen helped reverse early losses to see the Nikkei to its 14th straight gain, matching its best run since 1961. It is up more than five percent since its September 29 close.

Hong Kong jumped 1.2 percent after sinking almost two percent Thursday on profit-taking, while Sydney gained 0.2 percent and Seoul jumped 0.7 percent. Shanghai rose 0.3 percent.

Singapore gained 0.1 percent while Wellington and Jakarta were also up.

In early European trade London and Frankfurt each rose 0.5 percent while Paris was 0.4 percent higher.

Traders are keeping a keen eye on events in Europe where Spain’s government said it will start seizing some of the Catalan regional government’s powers after the region’s leader warned he could declare independence. 

The crisis has sparked concerns about one of the European Union’s biggest economies and Madrid has already cut its growth forecast for next year owing to the crisis.

At the same time EU and British officials are deadlocked in Brexit talks with both sides blaming the other, leading to uncertainty. 

Data is also beginning to show frailties in Britain’s economy as the weaker pound sends inflation soaring, which in turn is hitting consumers.

The New Zealand dollar slipped again and is down more than three percent from Thursday morning after Labour’s Jacinda Ardern was anointed prime minister after weeks of wrangling following an indecisive general election.

“After a decade of National Party rule, the change to Labour was always going to increase uncertainty,” said Greg McKenna, chief market strategist at AxiTrader.

“But when Arden says things like she wants to lead an ‘active government’ and that ‘we won’t just allow the economy to be carried by housing price inflation and population growth’ traders wonder exactly what that means.”