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Asian Investors Get Their Party Hats On for Dow 20,000

January 26, 2017

Asian stocks rose to 3-1/2-month highs on Thursday, cheered by the Dow Jones Industrial Average breaching the 20,000-level for the first time, though concerns about U.S. President Donald Trump’s protectionist stance kept the dollar on the defensive.

Spreadbetters forecast European stocks would follow, seeing a higher open for Britain’s FTSE, Germany’s DAX and France’s CAC

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8% to its highest since Oct. 11.

South Korea’s Kospi advanced 1%, Hong Kong’s Hang Seng climbed 1.3% and Shanghai edged up 0.2% ahead of China’s week-long Lunar New Year holiday.

Japan’s Nikkei brushed aside a stronger yen to rise 1.7%.

“Today’s excitement mainly comes from strong U.S. stocks overnight, but people are also positive about Japanese companies’ earnings especially machinery manufacturers,” said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

The Dow closed atop the 20,000 mark for the first time overnight as solid earnings and optimism over Trump’s pro-growth initiatives revitalized a post-election rally.

Safe-haven U.S. Treasuries were duly sold as risk aversion ebbed and the benchmark 10-year note yield rose to a four-week high on Wednesday. Subdued investor demand at a five-year auction also hurt Treasuries.

The dollar, which often draws support from higher Treasury yields, failed to follow suit. An index tracking the greenback against a basket of major currencies slid to a seven-week low of 99.793 on Thursday.

Unlike equities, the currency markets focused more on Trump’s trade protectionism and the negative impact it could have on the dollar.

“The problem that the greenback is having right now is two fold – first Trump has been talking down the currency and second, his policies make foreign investors nervous,” wrote Kathy Lien, managing director of FX strategy for BK Asset Management.

“Until the market comes to terms with the risk/benefits of Trump policy, the dollar may have a tough time mimicking the one way moves in stocks and bonds.”

The dollar was little changed at 113.375 yen after losing 0.5% overnight.

It had soared to a 10-month high of 118.660 in mid-December at the apex of the dollar-boosting Trump trade, when the market focus was on bets of more fiscal stimulus and reflationary measures under the new administration.

The euro was steady at $1.0754 after gaining 0.2% the previous day. The common currency had risen to a 1-1/2-month high of $1.0775 on Tuesday against the struggling dollar.

The pound extended its overnight rally and touched a six-week high of $1.2663.

Sterling has drawn its latest boost from expectations that British Prime Minister Theresa May’s upcoming meeting with Trump would pave the way for a rapid U.S. trade deal, which may offset some of the damage from its looming divorce with the European Union.

In commodities, crude oil prices bounced amid the dollar’s weakening after falling the previous day on data showing a build in U.S. crude inventories.

U.S. crude was up 0.8% at $53.18 a barrel after losing the same amount the previous day. Brent added 0.8% to $55.53 a barrel.

A weaker greenback tends to favour non-U.S. buyers of dollar-denominated commodities like crude.

Gold was on track for a third straight day of losses as the risk-on mood in the global markets reduced demand for the precious metal.

Spot gold was down 0.15% at $1,197.96 an ounce, pulled back from a two-month high of $1,219.59 scaled on Tuesday.